Pre-Effective Amendment to Registration of Securities Issued in a Business-Combination Transaction Forming a Bank, Savings & Loan or Holding Company — Form S-4
Filing Table of Contents
Document/Exhibit Description Pages Size
1: S-4EF/A Pre-Effective Amendment #1 to Form S-4 193 837K
2: EX-4.1 Instrument Defining the Rights of Security Holders 2 9K
3: EX-5.1 Opinion re: Legality 2 11K
4: EX-8.1 Opinion re: Tax Matters 4 15K
5: EX-10.2 Material Contract 9 38K
6: EX-99.1 Miscellaneous Exhibit 2 8K
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 5, 2000
REGISTRATION NO.: 333-50126
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
NARA BANCORP, INC.
(Exact name of registrant as specified in its charter)
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Delaware 6712 95-4170121
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
3701 Wilshire Boulevard, Suite 220
Los Angeles, California 90010
(213) 639-1700
(Address including zip code, and telephone number, including area code,
of registrant's principal executive office)
Benjamin B. Hong
President and Chief Executive Officer
Nara Bancorp, Inc.
3701 Wilshire Boulevard, Suite 220
Los Angeles, California 90010
(213) 639-1700
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
T. J. Grasmick, Esq.
Manatt, Phelps & Phillips, LLP
11355 West Olympic Boulevard
Los Angeles, California 90064
Telephone: (310) 312-4000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
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If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Maximum Maximum
Title of Each Class of Amount to be offering price aggregate offering Amount of
Securities to be Registered registered (1) per unit (2) price (2) Registration fee(3)
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common stock, $0.001 par value 5,511,092 $13.75 $75,777,515.00 $20,005.26
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(1) This amount is based on the number of shares of common stock to be
issued upon consummation of the reorganization and merger contemplated
in the Plan of Reorganization and Merger Agreement dated
November 10, 2000 by and between Nara Bancorp, Inc., Nara Bank, National
Association and Nara Interim Bank, National Association.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(f)(1) of the Securities Act of
1933, as amended, based the average of the high and low prices per share
of the common stock of Nara Bank, National Association as of
November 14, 2000 as reported on the Nasdaq Stock Market, Inc. National
Market System.
(3) Previously paid by the registrant in connection with the filing of
the Registration Statement on Form S-4 dated November 16, 2000,
Registration No. 333-50126.
NARA BANK, NATIONAL ASSOCIATION
3701 WILSHIRE BOULEVARD
SUITE 220
LOS ANGELES, CA 90010
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 17, 2001
To Our Shareholders:
A special meeting of shareholders of Nara Bank, N.A. ("Nara Bank") will be held
at the Oxford Palace Hotel, 745 South Oxford Avenue, Los Angeles, California on
Wednesday, January 17, 2001, at 10:30 a.m.
At our meeting, we will ask you to vote on the following matters:
- APPROVAL OF THE REORGANIZATION. You will be asked to vote on a
proposal to establish a new holding company for Nara Bank;
- OTHER BUSINESS. If other business is properly raised at the
meeting or if we need to adjourn the meeting, you will also vote
on these matters.
This proxy statement is also an offering memorandum and prospectus of Nara
Bancorp, Inc. ("Nara Bancorp") for shares of its common stock, $0.001 par value,
which it will issue if the holding company transaction proceeds.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, THE COMPTROLLER OF THE CURRENCY
NOR ANY STATE SECURITIES COMMISSIONER HAS APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE NOT DEPOSITS, ACCOUNTS OR OTHER OBLIGATIONS OF A BANK AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION.
If you were a shareholder as of the close of business on November 22, 2000, you
are entitled to vote at this meeting.
We cordially invite all shareholders to attend the meeting in person. Whether or
not you expect to attend this special meeting, please complete, sign, date and
promptly mail your proxy in the envelope provided. You may revoke this proxy at
any time prior to the special meeting, and, if you attend the special meeting,
you may vote your shares in person.
BY ORDER OF THE BOARD OF DIRECTORS,
Bon T. Goo, Secretary
Dated: December 12, 2000
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GENERAL INFORMATION 1
Why Did You Send Me This Proxy Statement? 2
What Am I Voting On? 2
What Are the Recommendations of the Board of Directors? 2
Who Is Entitled to Vote? 2
What Constitutes A Quorum? 2
What Is A "Broker Non-Vote"? 2
How Do I Vote By Proxy? 2
How Many Votes Do I Have? 3
Can I Change My Vote After I Return My Proxy Card? 3
How Do I Vote In Person? 3
What Happens if I Don't Vote? 3
How Will Nara Bank Executive Officers and Directors Vote? 4
Who Will Cover the Costs of This Proxy Solicitation? 4
Who Can I Call if I Have Questions? 4
QUESTIONS AND ANSWERS REGARDING THE HOLDING COMPANY
REORGANIZATION 5
Why is the Board Proposing the Reorganization? 5
Will the Reorganization Change the Business of the Bank? 5
How Will the Reorganization Affect Shareholders? 5
What is the Vote Required for Approval of the Reorganization? 5
Is the Reorganization Subject to Any Other Approvals? 6
What About Shareholders Who Do Not Wish to Own Shares in Nara Bancorp
or Simply Don't Want the Reorganization to Go Forward? 6
What Are the Tax Consequences to Shareholders? 6
Will Any Other Matters Be Considered at the Special Meeting? 6
RISK FACTORS 7
A WARNING ABOUT FORWARD-LOOKING STATEMENTS 7
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 8
Who Are the Largest Owners of Nara Bank's Common Stock? 8
How Much Stock Do Nara Bank Directors and Officers Own? 8
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Did Directors and Officers Comply with Their Section 16(a) Beneficial
Ownership Reporting Compliance Requirements in 1999? 9
EXECUTIVE AND DIRECTOR COMPENSATION 9
How Do We Compensate Directors? 9
How Do We Compensate Executive Officers? 10
PROPOSAL NO. 1 PROPOSED HOLDING COMPANY FORMATION 11
Overview 11
What Is the Structure of the Reorganization? 11
Who Are the Parties to the Reorganization? 12
Recommendation of the Board of Directors 13
What Are Reasons for the Reorganization? 13
How Many of Nara Bank's Shareholders Need to Approve the Reorganization? 14
What Are the Organizational Transactions? 14
What Are the Terms of the Reorganization? 14
When Will the Reorganization be Completed? 15
Are My Rights as a Shareholder Going to Change? 15
What Is the Effect of the Reorganization? 15
Will Share Certificates be Exchanged? 16
Will the Directors and Officers of Nara Bancorp be Different
from the Directors and Officers of Nara Bank? 16
What About Employee Benefits and Stock Option Plans? 16
What Are the Conditions to the Reorganization? 17
Can the Reorganization Agreement be Terminated? 18
Who Will Bear the Costs of the Reorganization? 18
What Are the Income Tax Consequences? 18
Will There Be a Market for My Newly Acquired Nara Bancorp Common Stock? 19
Will the Accounting Treatment Change? 20
What About Dissenting Shareholders Rights? 20
Description of Nara Bancorp Common Stock 21
How Do the Rights of Holders of Nara Bancorp Common Stock Compare to
Those of Nara Bank Common Stock? 22
What Is the Authorized Capital Stock? 22
How Will Liquidation Rights Differ? 23
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How Will Redemption Rights Differ? 23
Are There Any Preemptive Rights? 23
How Will Indemnification Provisions Differ? 23
How Will Governing Law Differ? 25
How Will Voting Rights Differ? 26
How Will Shareholder Action Without a Meeting Differ? 26
How Will Shareholder Vote on Business Combinations Differ? 26
How Will Special Meetings of Shareholders Differ? 27
How Will Dividends Differ? 27
How Will Amendments to Charter and Bylaws Differ? 27
How Will the Board of Directors Differ? 27
How Will the Nomination to the Board of Directors Differ? 28
How Will Dissenters' Rights Differ? 28
How Will Certain Anti-Takeover Provisions Differ? 28
Description of Nara Bancorp Organization 31
Who Are the Officers of Nara Bancorp? 31
Will Nara Bancorp be Subject to any Supervision and Regulation? 31
Are There any Restrictions on Transfer of Funds to Nara Bancorp by Nara Bank? 33
Description of Interim Bank 33
Description of Nara Bank 33
Business of Nara Bank 34
Nara Bank Banking Services 34
Commercial Banking 35
International Banking 35
Automobile Loans 35
Small Business Administration Loans 35
Competition and Service Area 36
Employees 36
Employee Benefit Plans 36
1989 Stock Option Plan 36
Deferred Compensation Plan 37
2000 Long Term Incentive Plan 37
401(k) Savings Plan 38
Employee Stock Ownership Plan 38
Stock Options 38
Employment Agreement with Our President and Chief Executive Officer 39
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Share Prices 39
Properties 40
Nara Bank's 1999 Subordinated Notes 42
Nara Bank's 2000 Subscription Offering 43
Supervision and Regulation 43
General 43
Nara Bank 43
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 45
PROPOSALS OF SHAREHOLDERS 45
FINANCIAL INFORMATION 45
ANNUAL REPORT TO SHAREHOLDERS 45
LEGAL PROCEEDINGS 46
WHERE YOU CAN FIND MORE INFORMATION 46
OTHER MATTERS 47
APPENDIX I 12 USC 215a(b) - (d)
APPENDIX II Plan of Reorganization and Merger Agreement dated as
of November 10, 2000 by and between Nara Bank, N.A.,
Nara Bancorp, Inc. and Nara Interim Bank, N.A.
APPENDIX III Certificate of Incorporation of Nara Bancorp, Inc.
APPENDIX IV Bylaws of Nara Bancorp, Inc.
APPENDIX V Stockholder's Agreement of Nara Bancorp, Inc.
APPENDIX VI 1999 Annual Report of Nara Bank, N.A. on Form 10-KSB
APPENDIX VII Quarterly Report of Nara Bank, N.A. on Form 10-Q
for the quarter ended September 30, 2000
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS. NEITHER NARA BANK NOR NARA BANCORP HAVE AUTHORIZED ANYONE
TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.
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PROXY STATEMENT OF
NARA BANK, NATIONAL ASSOCIATION
3701 Wilshire Boulevard
Suite 220
Los Angeles, CA 90010
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PROSPECTUS OF NARA BANCORP, INC.
3701 Wilshire Boulevard
Suite 220
Los Angeles, CA 90010
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SPECIAL MEETING OF SHAREHOLDERS
JANUARY 17, 2001
This proxy statement/prospectus is being furnished by the board of directors of
Nara Bank, National Association ("Nara Bank") to be used at the special meeting
of shareholders to be held at the Oxford Palace Hotel, 735 South Oxford Avenue,
Los Angeles, California on Wednesday, January 17, 2001, at 10:30 a.m. This proxy
statement/prospectus will first be mailed to shareholders on or about December
12, 2000.
THE FOLLOWING QUESTION AND ANSWER SECTION HIGHLIGHTS SELECTED INFORMATION FROM
THIS PROXY STATEMENT/PROSPECTUS AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT
IS IMPORTANT TO YOU. TO UNDERSTAND THE HOLDING COMPANY REORGANIZATION FULLY, WE
URGE YOU TO READ CAREFULLY THIS ENTIRE DOCUMENT, INCLUDING THE ATTACHMENTS.
GENERAL INFORMATION
WHY DID YOU SEND ME THIS PROXY STATEMENT?
We sent you this proxy statement/prospectus and the enclosed proxy card because
the board of directors is soliciting your vote at the special meeting of
shareholders. This proxy statement/prospectus summarizes the information you
need to know to cast an informed vote at the meeting.
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WHAT AM I VOTING ON?
At the special meeting you will be asked to vote on:
- the reorganization, which establishes a holding company for Nara
Bank; and
- any other business properly raised at the meeting.
WHAT ARE THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS?
Your Board of Directors believes that approval of the reorganization is in the
best interests of Nara Bank and our shareholders. Therefore, we unanimously
recommend that you vote FOR the reorganization and the formation of Nara
Bancorp, Inc. ("Nara Bancorp") as a bank holding company.
WHO IS ENTITLED TO VOTE?
If you were a shareholder of record as of the close of business on November 22,
2000, you are entitled to vote at the special meeting. There were 5,461,092
shares of Nara Bank's common stock outstanding and entitled to be voted on the
record date.
WHAT CONSTITUTES A QUORUM?
To establish a quorum at the special meeting, a majority of the shares of our
common stock outstanding on the record date must be present either in person or
by proxy. Abstentions and "broker non-votes" (see below) will be counted for
purposes of establishing the presence of a quorum at the meeting.
WHAT IS A "BROKER NON-VOTE"?
A "broker non-vote" is when a broker submits a proxy that does not indicate a
vote because the broker has not received instructions from the shareholder on
how to vote. In this case, the broker does not have discretionary authority to
vote in the absence of instructions. If you do not provide your broker with
instructions, your broker will not know how to vote and this will have the
effect of voting against the reorganization.
HOW DO I VOTE BY PROXY?
Whether you plan to attend the meeting or not, we urge you to complete, sign and
date the enclosed proxy card and to return it promptly in the envelope provided.
Returning the proxy card will not affect your right to attend the meeting and
vote.
If you properly fill in your proxy card and send it to us in time to vote, your
"proxy" (one of the individuals named on your proxy card) will vote your shares
as you have directed. If you sign the proxy card but do not make specific
choices, your proxy will vote your shares as recommended by the board of
directors as follows:
- "FOR" the reorganization;
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- in the discretion of the proxy holder as to any other matter
that may properly come before the meeting.
HOW MANY VOTES DO I HAVE?
Each share of common stock entitles you to one (1) vote. The proxy card
indicates the number of shares of common stock that you own.
CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?
Yes. Even after you have submitted your proxy, you may change your vote at any
time before the proxy is voted at the special meeting if:
- you file either a written revocation of your proxy, or a duly
executed proxy bearing a later date, with the Corporate
Secretary of Nara Bank prior to the meeting, or
- you attend the meeting and vote in person. Presence at the
meeting will not revoke your proxy unless and until you vote in
person.
If you have instructed a broker to vote your shares, you must follow directions
received from your broker to change your vote or to vote at the special meeting.
However, if your shares are held in the name of your broker, bank or other
nominee, and you wish to vote in person, you must bring an account statement and
a letter of authorization from your nominee so that you can vote your shares.
HOW DO I VOTE IN PERSON?
If you plan to attend the meeting and vote in person, we will give you a ballot
form when you arrive. However, if your shares are held in the name of your
broker, bank or other nominee, you must bring a proxy card and letter from the
nominee authorizing you to vote the shares and indicating that you are the
beneficial owner of the shares on November 22, 2000, the record date for
voting.
WHAT HAPPENS IF I DON'T VOTE?
If you "abstain" from voting, it has the same effect as if you voted "against"
the reorganization. Also, "broker non-votes" will have the effect of voting
"against" the reorganization.
The inspectors of election for the meeting will count votes cast by proxy or in
person at the meeting. Unless otherwise instructed, the inspectors of election
will vote each valid proxy, which is not revoked,
- "FOR" the reorganization; and
- in the discretion of the proxy holder as to any other matter
that may properly come before the meeting.
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If any other matter is properly presented before the meeting, your proxy will
vote in accordance with the recommendation of the board of directors or, if no
recommendation is given, in their own discretion.
HOW WILL NARA BANK EXECUTIVE OFFICERS AND DIRECTORS VOTE?
We currently expect that directors and officers will vote all of their shares in
favor of the reorganization. On the record date of November 22, 2000, our
executive officers and directors, including their affiliates, had voting power
with respect to an aggregate of 781,552 shares of our common stock or
approximately 14.31% of the shares of our common stock then-outstanding. This
number relates only to the voting power of our executive officers and directors
and does not include shares beneficially owned but not exercised.
WHO WILL COVER THE COSTS OF THIS PROXY SOLICITATION?
Nara Bank will bear the cost of this solicitation, including the expense of
preparing, assembling, printing and mailing this proxy statement/prospectus and
the material used in this solicitation of proxies. The proxies will be solicited
principally through the mails, but Nara Bank's directors, officers and regular
employees may solicit proxies personally or by telephone. Although there is no
formal agreement to do so, we may reimburse banks, brokerage houses and other
custodians, nominees and fiduciaries for their reasonable expense in forwarding
these proxy materials to their principals. In addition, we may pay for and
utilize the services of individuals or companies we do not regularly employ in
connection with the solicitation of proxies.
WHO CAN I CALL IF I HAVE QUESTIONS?
If you want additional copies of this document, or if you want to ask questions
about the reorganization, you should contact:
Bon T. Goo
Nara Bank, N.A.
3701 Wilshire Boulevard, Suite 220
Los Angeles, California 90010
Phone: (213) 639-1700
Telecopy: (213) 235-3033
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QUESTIONS AND ANSWERS REGARDING
THE HOLDING COMPANY REORGANIZATION
WHY IS THE BOARD PROPOSING THE REORGANIZATION?
Your board of directors believes that the reorganization will provide Nara Bank
with greater financial and corporate flexibility. With a holding company, Nara
Bank will have more options for structuring acquisitions and will be able to
raise capital by means which are not currently available to Nara Bank.
WILL THE REORGANIZATION CHANGE THE BUSINESS OF THE BANK?
No. The reorganization will not change the current business of Nara Bank.
Following the reorganization, the principal activity of Nara Bancorp, Inc., the
holding company, will be owning and operating Nara Bank which will continue to
conduct its current business from its current offices. The principal executive
offices of both Nara Bank and Nara Bancorp, will be located at 3701 Wilshire
Boulevard, Suit 220, Los Angeles, CA 90010 and their telephone number will be
(213) 639-1700.
HOW WILL THE REORGANIZATION AFFECT SHAREHOLDERS?
In connection with this merger, you will receive one share of stock in the
holding company for each share of Nara Bank stock you currently own. Outstanding
stock certificates will no longer represent an interest in Nara Bank but will
instead represent an interest in Nara Bancorp.
As a result of the reorganization, you will no longer own stock directly in Nara
Bank but will instead own stock in the holding company. Your rights will be
governed by the Nara Bancorp's Certificate of Incorporation and Bylaws and the
Delaware General Corporation Law rather than by Nara Bank's Articles of
Association and Bylaws and the National Bank Act and regulations of the Office
of the Comptroller of the Currency. For a detailed discussion of the differences
in the rights of shareholders, see "Proposal I - Proposed Holding Company
Formation - How do the Rights of Holders of Nara Bancorp Common Stock Compare to
Those of Nara Bank Common Stock?"
WHAT IS THE VOTE REQUIRED FOR APPROVAL OF THE REORGANIZATION?
In order to approve the holding company reorganization, the reorganization
agreement must receive the affirmative vote of not less than two-thirds (2/3) of
the votes of the issued and outstanding shares of Nara Bank's common stock.
Your board of directors has unanimously approved the reorganization and
recommends that you vote for it as well. Because the vote is based on the total
number of shares outstanding rather than the votes cast at the meeting, your
failure to vote has the same effect as a vote against the reorganization. As of
the record date, directors and executive officers of Nara Bank currently have
beneficial ownership of 1,135,432 shares of Nara Bank's common stock which is
20.79% of the shares outstanding, and have voting control over 781,552 shares of
common stock which is 14.31% of the shares outstanding. We expect that the
directors and executive officers will vote all their shares for the
reorganization.
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IS THE REORGANIZATION SUBJECT TO ANY OTHER APPROVALS?
Yes. The reorganization must also be approved by the federal agencies that
regulate national banks and bank holding companies, respectively: the Office of
the Comptroller of the Currency and the Board of Governors of the Federal
Reserve System. Applications have been filed for these approvals. On December 1,
2000, the Comptroller of the Currency approved the reorganization and gave
preliminary approval for the organization of Interim Bank.
WHAT ABOUT SHAREHOLDERS WHO DO NOT WISH TO OWN SHARES IN NARA BANCORP OR SIMPLY
DON'T WANT THE REORGANIZATION TO GO FORWARD?
By following certain procedures, you may dissent from the reorganization. If you
vote against the reorganization and provide the appropriate written notice to
Nara Bank you will have the right to demand an appraisal for your shares. These
procedures are described in "Proposal I - Proposed Holding Company Formation -
What About Dissenting Shareholders' Rights?" and as set forth in 12 U.S.C. 215a
(b)-(d) which is attached as APPENDIX I. Your board of directors does not intend
to complete the reorganization if shareholders seek appraisal for more than 5%
of the outstanding shares.
WHAT ARE THE TAX CONSEQUENCES TO SHAREHOLDERS?
Nara Bank has received an opinion from its special counsel that no gains or
losses will be recognized by it or by you as a result of the reorganization,
except for shareholders who dissent from the reorganization and receive the
appraised value of their shares.
WILL ANY OTHER MATTERS BE CONSIDERED AT THE SPECIAL MEETING?
We are unaware of any matter to be presented at the special meeting other than
the reorganization proposal discussed in this proxy statement/prospectus. If
other matters are properly presented at the special meeting, then the person(s)
named in the proxy will have authority to vote all properly executed proxies in
accordance with their judgment on any such matter, including any proposal to
adjourn or postpone the meeting. If you vote against the proposal, your proxy
will not vote in favor of any proposal to adjourn or postpone the meeting if
such postponement or adjournment is for the purpose of soliciting additional
proxies to approve the proposal that you voted against.
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RISK FACTORS
In addition to the other information contained in this proxy
statement/prospectus, the following factors should be considered carefully in
evaluating the exchange of Nara Bank common stock shares for Nara Bancorp common
stock.
ANTI-TAKEOVER PROVISIONS IN THE DELAWARE GENERAL CORPORATIONS LAW MAY DISCOURAGE
OFFERS TO ACQUIRE NARA BANCORP. Delaware law contains certain provisions that
could delay, discourage or prevent an attempted takeover of Nara Bancorp. Once
the reorganization is effective and Nara Bancorp is listed on NASDAQ, it will be
subject to these provisions of Delaware law. These provisions could discourage
takeover proposals not approved by the board of directors in which shareholders
could receive a premium for their shares. For further discussion of these
provisions in Delaware law, see "Proposal I - Proposed Holding Company Formation
- How Will Certain Anti-Takeover Provisions Differ?"
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
Certain statements contained in this proxy statement, including statements
containing the words "believes," "anticipates," "intends," "expects," and words
of similar import, constitute "forward-looking statements." These statements
involve known and unknown risks, uncertainties and other facts that may cause
actual results, performance or achievements of Nara Bank and/or Nara Bancorp to
be materially different from any future results, performance or achievement
expressed or implied by such forward-looking statements. Such factors include
the following:
- general economic and business conditions in those areas in which
Nara Bank operates;
- demographic changes; competition;
- fluctuations in interest rates;
- changes in business strategy or development plans;
- changes in governmental regulation;
- credit quality; the availability of capital to fund the
expansion of Nara Bank's and/or Nara Bancorp's business; and
- other factors referenced in this proxy statement.
GIVEN THESE UNCERTAINTIES, YOU ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH
FORWARD-LOOKING STATEMENTS. Nara Bank and Nara Bancorp disclaim any obligation
to update any such factors or to publicly announce the results of any revisions
to any of the forward-looking statements contained herein to reflect future
events or developments.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
WHO ARE THE LARGEST OWNERS OF NARA BANK'S COMMON STOCK?
The following table shows the beneficial ownership of our common stock as of
November 22, 2000, by each person who we knew owned more than 5% of our common
stock. "Beneficial ownership" is a technical term broadly defined by the
Securities and Exchange Commission to mean more than ownership in the usual
sense. Nara Bank's common stock can be beneficially owned directly or
indirectly. Indirect beneficial ownership is when, through a relationship,
contract or understanding, you have or share the power to vote or sell the stock
or have the right to acquire the stock within 60 days of November 22, 2000:
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NAME AND ADDRESS NUMBER OF SHARES PERCENT OF CLASS
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John Barry 493,404(1) 9.03%
2104 Hastings Avenue
Newport, MN 55055
Chong-Moon Lee 474,876 8.70%
1245 Oakmead Parkway
Sunnyvale, CA 94086
Thomas Chung 387,091(2) 7.09%
5525 Wilshire Boulevard
Los Angeles, CA 90036
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(1) Includes 143,484 shares held by Mr. Barry's children and the Barry
Foundation.
(2) Includes 34,992 shares vested but not exercised under Nara Bank's 1989
Stock Option Plan.
HOW MUCH STOCK DO NARA BANK DIRECTORS AND OFFICERS OWN?
The following table shows the beneficial ownership of Nara Bank's common stock
as of November 22, 2000 by (i) our chairman and chief executive officer; (ii)
our most highly compensated executive officers in 1999; (iii) each director and
nominee for director and (iv) all directors and executive officers as a group.
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NAME AND POSITIONS HELD NUMBER OF SHARES PERCENT OF CLASS
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Benjamin B. Hong(1) 187,609(2) 3.43%
President, CEO & Director
Bon T. Goo(1) 42,959(3)(4) 0.78%
Executive Vice President &
Chief Financial Officer
Min J. Kim(1) 34,992(5) 0.64%
Executive Vice President &
Chief Credit Officer
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NAME AND POSITIONS HELD NUMBER OF SHARES PERCENT OF CLASS
----------------------- ---------------- ----------------
Thomas Chung(1) 387,091(3) 7.09%
Chairman of Board
Chang H. Kim, Director(1) 108,032(3)(6) 1.98%
Yong H. Kim, Director(1) 190,039(3) 3.48%
Hyon M. Park, Director(1) 116,243(3)(7) 2.13%
Brian B. Woo, Director(1) 68,467(3)(8) 1.25%
ALL DIRECTORS AND OFFICERS 1,135,432(9) 20.79%
(8 TOTAL)
(1) The address for each of these individuals is c/o Nara Bank, N.A., 3701
Wilshire Boulevard, Suite 220, Los Angeles, California 90010.
(2) Includes 118,800 shares vested but not exercised under Nara Bank's 1989
Stock Option Plan.
(3) Includes 34,992 shares vested but not exercised under Nara Bank's 1989
Stock Option Plan.
(4) Includes 1,167 shares held by Mr. Goo's spouse and 1,800 shares held by
his son.
(5) Includes 23,328 shares vested but not exercised under Nara Bank's 1989
Stock Option Plan.
(6) Includes 1,634 shares held by Mr. Kim's minor children.
(7) Includes 3,024 shares held by Mr. Park's spouse.
(8) Includes 233 shares held by Mr. Woo's spouse.
(9) Includes 352,080 shares vested but not exercised under Nara Bank's 1989
Stock Option Plan.
DID DIRECTORS AND OFFICERS COMPLY WITH THEIR SECTION 16(A) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE REQUIREMENTS IN 1999?
Section 16(a) of the Exchange Act requires our directors and executive officers,
and persons who own more than 10% of our equity securities, to file reports of
ownership and reports of changes in ownership of common stock with the
Securities and Exchange Commission. The Securities and Exchange Commission
requires officers, directors and greater than 10% stockholders to furnish us
with copies of all Section 16(a) forms they file.
To our best knowledge, based solely on a review of the copies of such forms and
certifications furnished to us, we believe that all Section 16(a) filing
requirements were complied with during 1999.
EXECUTIVE AND DIRECTOR COMPENSATION
HOW DO WE COMPENSATE DIRECTORS?
The outside non-employee directors were paid $3,000 monthly if they attended at
least one meeting during a month regardless of the number of meetings held
during a month. The only employee director on the board (the President) received
$1,000 monthly for his service as a director in addition to his regular salary
and bonuses. The Chairman of the Board received an
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additional $400 per month for services rendered. Total directors' fees paid in
1999 were $126,200 of which $72,000 was deferred under Nara Bank's deferred
compensation plan.
HOW DO WE COMPENSATE EXECUTIVE OFFICERS?
The following table sets forth certain summary information concerning
compensation awarded to, earned by, or paid for services rendered to Nara Bank
in all capacities by Nara Bank's chief executive officer and our most highly
compensated executive officers who earned in excess of $100,000 (the "Named
Officers"), for each of the fiscal years ended December 31, 1999, 1998 and 1997.
SUMMARY COMPENSATION TABLE
[Enlarge/Download Table]
LONG TERM COMPENSATION
----------------------------------------------
ANNUAL COMPENSATION(1) RESTRICTED OPTION
-------------------------------------------------------
NAME AND PRINCIPAL STOCK SHARES/ LTIP ALL OTHER
POSITION YEAR SALARY BONUS OTHER AWARDS SARs PAYOUTS COMPENSATION
------------------ ---- -------- -------- ----------- ------ ---- ------- ------------
Benjamin Hong 1999 $184,074 $384,017 $ 12,000(2) N/A -0- N/A $-0-
President & Chief 1998 $179,691 $310,232 $ 12,000(2) N/A -0- N/A $-0-
Executive Officer 1997 $170,346 $154,198 $ 12,000(2) N/A 30,000 N/A $-0-
Bon T. Goo 1999 $ 86,730 $ 43,648 N/A N/A -0- N/A $-0-
EVP & Chief 1998 $ 81,945 $ 53,442 N/A N/A -0- N/A $-0-
Financial Officer 1997 $ 78,042 $ 33,933 N/A N/A 10,000 N/A $-0-
Min J. Kim 1999 $ 84,632 $ 53,482 $ 8,400(3) N/A -0- N/A $-0-
EVP & Chief 1998 $ 75,735 $ 73,165 $ 8,400(3) N/A -0- N/A $-0-
Credit Officer 1997 $ 72,150 $ 53,617 $ 6,650(3) N/A 10,000 N/A $-0-
------------------------------------------------------------------------------------------------------------------------------------
(1) Nara Bank furnishes and plans to continue to furnish to certain officers
the use of Bank-owned automobiles which are used primarily for business
purposes. Nara Bank has provided and intends to continue to provide
certain officers with certain specified life and medical insurance
benefits. Because portions of automobile expenses, club membership fees,
insurance premiums attributable to personal use, and other perquisites
did not exceed the lesser of $50,000 or ten percent (10%) of the total
annual salary reported in the table per individual, such amounts have
not been included in the foregoing figures.
(2) Represents fees received for services as a director of Nara Bank.
(3) Represents automobile allowance.
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PROPOSAL NO. 1
PROPOSED HOLDING COMPANY FORMATION
OVERVIEW
Nara Bank, N.A. ("Nara Bank") proposes that the shareholders approve the
formation of a new holding company.
The proposed holding company formation is called the "reorganization" and is
governed by the Plan of Reorganization and Merger Agreement, also referred to as
the "reorganization agreement." THE FULL TEXT OF THE REORGANIZATION AGREEMENT IS
ATTACHED AS APPENDIX II TO THIS PROXY STATEMENT/PROSPECTUS. WE HAVE SUMMARIZED
THE MATERIAL TERMS OF THE REORGANIZATION BELOW.
Under the terms of the reorganization agreement, Nara Bank will become a
wholly-owned subsidiary of Nara Bancorp, Inc. ("Nara Bancorp"), a Delaware
corporation recently formed for the purpose of becoming a holding company for
Nara Bank. Under the reorganization agreement, each outstanding share of Nara
Bank common stock (other than shares as to which dissenters' rights of appraisal
have been properly exercised) will be converted into one share of Nara Bancorp
common stock, and the former holders of Nara Bank common stock will become the
holders of all of the common stock of Nara Bancorp. Nara Bancorp was
incorporated on June 5, 2000 and has no prior operating history. Following the
reorganization, it is intended that Nara Bank will continue its operations at
the same location, with the same management, and subject to substantially all
the rights, obligations and liabilities of Nara Bank existing immediately prior
to the reorganization.
WHAT IS THE STRUCTURE OF THE REORGANIZATION?
In the reorganization:
- Nara Bancorp will become the parent bank holding company of Nara
Bank; and
- all of the outstanding shares of Nara Bank common stock, except
for sales as to which shareholders have exercised dissenters'
rights of appraisal, will be converted into and exchanged for
shares of Nara Bancorp common stock on a one-for-one basis.
After the reorganization,
- Nara Bank will continue its existing business and operations as
a wholly-owned subsidiary of Nara Bancorp and still under the
name of "Nara Bank, N.A.";
- the consolidated assets, liabilities, stockholders' equity and
income of Nara Bancorp will be substantially identical to those
of Nara Bank;
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- the current board of directors of Nara Bank will be the board of
directors of Nara Bancorp and the executive officers of Nara
Bank will be the executive officers of Nara Bancorp;
- the board of directors and executive officers of Nara Bank will
be unchanged as a result of the reorganization;
- the Comptroller of the Currency will continue as Nara Bank's
primary federal regulator and the Federal Deposit Insurance
Corporation will continue to insure Nara Bank's deposit accounts
to the maximum extent permitted by law;
- Nara Bancorp will be subject to supervision and regulation by
the Board of Governors of the Federal Reserve System and the
Federal Reserve Bank of San Francisco.
- shares of Nara Bancorp common stock will be registered with the
Securities and Exchange Commission pursuant to Section 12(g) of
the Securities Exchange Act of 1934 and will trade on the Nasdaq
National Market; and
- shares of Nara Bank common stock will no longer be publicly
traded and de-listed from the Nasdaq National Market.
If the reorganization is not accomplished, Nara Bank common stock will continue
to be traded on the Nasdaq National Market and Nara Bank will continue to
operate without a bank holding company structure.
WHO ARE THE PARTIES TO THE REORGANIZATION?
The parties to the reorganization are Nara Bank, Nara Bancorp and Nara Interim
Bank, N.A. ("Interim Bank")
NARA BANK is a national bank. Nara Bank commenced operations in 1989, and
currently maintains ten banking offices. The address of its principal office is
3701 Wilshire Boulevard, Suite 220, Los Angeles, California. At December 31,
1999, Nara Bank had total assets of $358.9 million, total deposits of $319.9
million and total shareholder's equity of $26.7 million. The accompanying Annual
Report to Shareholders of Nara Bank contains Nara Bank's audited financial
statements, management's discussion and analysis of financial results and
certain other information concerning Nara Bank. At September 30, 2000, Nara Bank
had total assets of $528.7 million, total deposits of $472.8 million and total
shareholders equity of $41.7 million as set forth in the unaudited financial
statements in the accompanying Form 10-Q.
NARA BANCORP is a Delaware corporation that was recently formed for the purpose
of becoming the parent bank holding company of Nara Bank. Nara Bancorp has no
operating history. The address of its principal office is 3701 Wilshire
Boulevard, Suite 220, Los Angeles, California.
INTERIM BANK is organized as a subsidiary of Nara Bancorp in connection with the
reorganization by Nara Bank. If the reorganization is approved by the
shareholders of Nara Bank and the other conditions set forth in the
reorganization agreement are satisfied or waived, Nara Bank will merge with and
into Interim Bank and the surviving entity
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will continue all operations under the name Nara Bank. The surviving entity will
be subject to all the rights, obligations and liabilities of Nara Bank existing
immediately prior to reorganization.
RECOMMENDATION OF THE BOARD OF DIRECTORS
Nara Bank's board of directors has unanimously approved the reorganization
agreement and the reorganization. We unanimously recommend that shareholders of
Nara Bank approve the reorganization agreement and the reorganization.
WHAT ARE REASONS FOR THE REORGANIZATION?
The board of directors of Nara Bank believes that a parent bank holding company
will:
- provide greater flexibility in responding to evolving changes in
banking and financial services industries and in meeting the
competition of other financial institutions. Nara Bank's board
of directors believes that a bank holding company is an entity
which can provide greater operating and financial flexibility
and facilitate expansion into a broader range of financial
services and other business activities;
- provide flexibility for acquiring or establishing financial
institutions and companies engaged in other related activities.
For example, the bank holding company will permit any acquired
institution to operate autonomously as a separate subsidiary of
Nara Bancorp. This will allow the acquired entity to retain its
own directors, officers, corporate name and identity, which may
be attractive to prospective acquisition candidates;
- provide flexibility for meeting the financing needs of the
enterprise, including providing capital to Nara Bank, either
through stock offerings, debt offerings, or borrowing at terms
and conditions otherwise unavailable to Nara Bank as a stand
alone entity;
- permit the holding company to engage in other activities that
are closely related to banking, either directly, or indirectly
through newly formed subsidiaries or by acquiring companies
already established in such fields;
- permit the bank holding company to consider whether to elect to
become a "financial holding company" under the
Gramm-Leach-Bliley Act of 1999 ("GLBA") financial modernization
legislation and exercise certain merchant banking and insurance
powers which are available only to bank holding companies that
may elect to become a financial holding company and not to
national banks; and
- Enhance Nara Bank's ability to satisfy ever changing and
expanding needs of present customers for banking and
banking-related services and to continue to attract new
customers for financial services.
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There are no current agreements or understandings for either the acquisition of
any financial institution or other company or for the diversification of
operations through use of Nara Bancorp. Nara Bank's board of directors believes,
however, that the ability to act promptly to take advantage of any desirable
opportunities that may arise in the future could be jeopardized if the
reorganization is deferred or terminated.
HOW MANY OF NARA BANK'S SHAREHOLDERS NEED TO APPROVE THE REORGANIZATION?
Approval of the reorganization agreement and the reorganization requires the
affirmative vote of the holders of not less than two-thirds (2/3) of the issued
and outstanding shares of Nara Bank Common Stock.
WHAT ARE THE ORGANIZATIONAL TRANSACTIONS?
At the direction of the board of directors of Nara Bank, Nara Bancorp was
incorporated under the laws of the State of Delaware on June 5, 2000 for purpose
of becoming a bank holding company. Benjamin B. Hong, Chang Hee Kim, Hyon Park,
Thomas Chung, Brian Woo and Yong Hwan Kim, currently own 100% of the outstanding
capital stock of Nara Bancorp.
At the direction of the board of directors of Nara Bank and Nara Bancorp, Nara
Interim Bank was incorporated for the purpose of merging with Nara Bank in
order to facilitate the reorganization. Prior to the effective time of the
reorganization, Nara Bancorp will be the sole shareholder of Nara Interim Bank.
Upon consummation of the reorganization, Nara Bank will be merged with and into
Nara Interim Bank and the surviving entity of the merger will be called "Nara
Bank, N.A." At the time of the merger, the capital stock of Nara Bancorp held by
the six above-named individuals will be canceled and the Nara Bank common stock
held by Nara Bank shareholders will be converted to Nara Bancorp common stock.
WHAT ARE THE TERMS OF THE REORGANIZATION?
Pursuant to the reorganization agreement, among other things,
- Nara Bank will merge with and into Interim Bank, with the
surviving bank being renamed "Nara Bank, N.A.;"
- the business of Nara Bank will continue in the form of the
surviving bank and will be unaffected and unimpaired by the
reorganization;
- each outstanding share of Nara Bank common stock will convert
into one share of Nara Bancorp common stock;
- each share of Nara Bancorp common stock outstanding immediately
prior to the consummation of the reorganization will be
purchased by Nara Bancorp for the amount paid for such shares;
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- Nara Bancorp will assume Nara Bank's stock option plans as well
as its other employee stock based plans, including the 2000 Long
Term Incentive Plan;
- the surviving bank will become a wholly-owned subsidiary of Nara
Bancorp; and
- the existing holders of Nara Bank common stock will own all of
the outstanding shares of Nara Bancorp common stock; and
- Nara Bancorp will apply to the Nasdaq Stock Market for approval
for listing the Nara Bancorp common stock on the Nasdaq National
Market System under the name of "NARA."
WHEN WILL THE REORGANIZATION BE COMPLETED?
Nara Bank expects that the reorganization will close early in the first quarter
of 2001.
ARE MY RIGHTS AS A SHAREHOLDER GOING TO CHANGE?
If Nara Bank completes the reorganization:
- you will receive one share of stock in Nara Bancorp for each
share of Nara Bank stock which you currently own;
- your outstanding stock certificates will no longer represent an
interest in the Nara Bank but will instead represent an interest
in Nara Bancorp;
- you will no longer own stock directly in Nara Bank but will
instead own stock in Nara Bancorp;
- you will not be entitled to vote directly on matters affecting
Nara Bank, such as the election of Nara Bank's directors.
However, you will be entitled to vote on matters affecting Nara
Bancorp, which will own one hundred percent (100%) of Nara Bank;
and
- your rights will be governed by Nara Bancorp's certificate of
incorporation, bylaws and the Delaware General Corporation Law,
instead of Nara Bank's articles of association, bylaws and the
National Bank Act.
WHAT IS THE EFFECT OF THE REORGANIZATION?
As a result of the reorganization:
- Nara Bancorp will become a publicly held corporation and will
succeed to Nara Bank's reporting obligations under the
securities laws;
- Nara Bank will continue to carry on its business and activities
as conducted immediately prior to the reorganization;
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- Nara Bank will continue to use the name Nara Bank;
- The common stock of Nara Bancorp will be quoted on the Nasdaq
National Market System under the current trading symbol of Nara
Bank's common stock, "NARA."
WILL SHARE CERTIFICATES BE EXCHANGED?
Upon consummation of the reorganization:
- the outstanding stock certificates which prior thereto
represented shares of Nara Bank will thereafter for all purposes
represent an equal number of shares of Nara Bancorp common stock
and the holders of those certificates will have all the rights
of shareholders of Nara Bancorp;
- Shareholders will be entitled to exchange their present stock
certificates for new certificates evidencing shares of Nara
Bancorp common stock, although shareholders will not need to
make such an exchange in order to have all of the right of
shareholders of Nara Bancorp;
- Nara Bancorp will notify shareholders of record by mail promptly
after the consummation of the reorganization of the procedures
to be followed in order to surrender their present share
certificates in exchange for new certificates evidencing shares
of Nara Bancorp common stock.
UNTIL NARA BANCORP NOTIFIES SHAREHOLDERS OF THE EXCHANGE PROCEDURES, EXISTING
SHARE CERTIFICATES SHOULD NOT BE RETURNED TO NARA BANK FOR EXCHANGE AND
REISSUANCE.
WILL THE DIRECTORS AND OFFICERS OF NARA BANCORP BE DIFFERENT FROM THE
DIRECTORS AND OFFICERS OF NARA BANK?
The reorganization agreement provides that the directors of Nara Bancorp will be
the same as the directors of Nara Bank, and the directors of Nara Bank will
continue in that capacity after the reorganization. Additionally, the officers
of Nara Bank will all be employed in the same capacities after the
reorganization.
WHAT ABOUT EMPLOYEE BENEFITS AND STOCK OPTION PLANS?
At the effective time of the reorganization;
- each share of Nara Bank common stock held in trust or otherwise
in connection with any and all of Nara Bank's employee benefit
plans will be converted into one share of Nara Bancorp common
stock;
- Nara Bancorp will adopt and assume Nara Bank's stock option
plans and its other employee stock plans. The same terms and
conditions will apply to these plans as existed prior to the
effective time of the reorganization;
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- Nara Bancorp will assume all outstanding options to purchase
shares of Nara Bank common stock pursuant to Nara Bank's stock
option plans and such options will be deemed options to purchase
shares of Nara Bancorp common stock on the same terms and
conditions and for the same number of shares and at the same
price as have been agreed upon and set forth in such plans and
the stock option agreements entered into pursuant thereto; and
- The reorganization will not affect other employee benefits and
benefit plans of Nara Bank.
WHAT ARE THE CONDITIONS TO THE REORGANIZATION?
The reorganization agreement is conditioned upon the following:
- approval and ratification of the reorganization agreement and
the reorganization by the holders of not less than two-thirds of
the outstanding shares of Nara Bank, Interim Bank and Nara
Bancorp, as required by applicable law;
- receipt of all other approvals and consents, and satisfaction of
all other requirements as are prescribed by applicable law in
connection with the reorganization including, but not limited
to, approval of the Comptroller of the Currency and a notice to
the Board of Governors of the Federal Reserve System pursuant to
the Bank Holding Company Act of 1956, as amended and Section
225.17 of Regulation Y promulgated pursuant thereto;
- the listing of Nara Bancorp common stock and de-listing of Nara
Bank common stock on the Nasdaq National Market;
- issuance of a favorable opinion from a law firm or accounting
firm, in form and substance satisfactory to the parties and
their counsel, with respect to the tax consequences to the
parties and their shareholders resulting from the
reorganization;
- issuance of a favorable legal opinion from a law firm, in form
and substance satisfactory to the policies, as required by
applicable securities laws;
- performance by each party to the reorganization of all its
obligations under the reorganization agreement.
Nara Bancorp has filed a notice with the Federal Reserve Board and the time for
the Federal Reserve Board to take action on such notice has not yet expired.
Nara Bank has filed applications with the Comptroller of the Currency to
organize Interim Bank and for approval of the merger. These applications are
currently pending. Although neither Nara Bancorp nor Nara Bank is aware of any
reason why the requisite approvals would not be granted, there can be no
assurances such approvals will be obtained or that, if obtained, such approvals
will not include conditions which would prevent Nara Bancorp, Nara Bank and
Interim Bank from consummating the reorganization.
On December 1, 2000, Nara Bank received the approval of the Comptroller of the
Currency for the reorganization, and preliminary approval for the organization
of Interim Bank.
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CAN THE REORGANIZATION AGREEMENT BE TERMINATED?
The reorganization agreement may be terminated if any of the following occurs:
- if any of the conditions are not fulfilled within a reasonable
period of time;
- if any action, suit, proceeding or claim has been instituted,
made or threatened, relating to the proposed reorganization
which makes consummation of the reorganization inadvisable; or
- if, for any reason, consummation of the reorganization is
inadvisable, as determined by the Board.
Upon termination, the reorganization agreement shall be void and of no further
effect. There shall be no liability by reason of the termination on the part of
the parties or their respective directors, officers, employees, agents or
shareholders.
WHO WILL BEAR THE COSTS OF THE REORGANIZATION?
Prior to the reorganization, Nara Bank will bear all of the expenses of the
reorganization, including filing fees, printing and mailing costs, accountants'
fees and legal fees. After the reorganization, Nara Bancorp will bear these
expenses. If the reorganization is abandoned or terminated for any reason, Nara
Bank will bear all expenses.
WHAT ARE THE INCOME TAX CONSEQUENCES?
The following discussion is limited to certain federal tax consequences of the
proposed reorganization and does not discuss other tax consequences that might
be relevant to shareholders of Nara Bank entitled to different tax treatment.
In the opinion of Manatt, Phelps & Phillips, LLP, the proposed reorganization
will qualify for tax purposes as a "reorganization" within the meaning of
Section 368 of the Internal Revenue Code of 1986, as amended. This opinion is
conditioned upon the accuracy of various representations made by Nara Bank, Nara
Bancorp and Interim Bank and certain assumptions. Neither this summary nor the
opinion of Manatt, Phelps & Phillips, LLP is binding upon the Internal Revenue
Service and no ruling has been sought or will be sought with respect to such tax
consequences.
Based upon the qualification of the reorganization as a "reorganization" within
the meaning of Section 368 of the Internal Revenue Code:
- Neither Nara Bank, Interim Bank nor Nara Bancorp will recognize
gain or loss as a result of the reorganization;
- Shareholders of Nara Bank will not recognize gain or loss upon
receipt of Nara Bancorp common stock in exchange for their
shares of Nara Bank common stock pursuant to the reorganization;
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- The basis of Nara Bancorp common stock received by the
shareholders of Nara Bank pursuant to the reorganization will be
the same as the basis of the shares of Nara Bank common stock
surrendered in exchange thereof; and
- The holding period of Nara Bancorp common stock received by the
shareholders of Nara Bank pursuant to the reorganization will
include the holding period of Nara Bank common stock surrendered
in exchange therefor, provided that a shareholder holds such
Nara Bank common stock as a capital asset on the date of
consummation of the reorganization.
Shareholders who dissent from the reorganization and receive cash in exchange
for their Nara Bank common stock will recognize taxable gain or loss in an
amount equal to the difference between their basis in the shares and the amount
of cash received. The tax treatment of gain or loss will depend on the
particular circumstances of each dissenting shareholder.
YOU ARE URGED TO CONSULT WITH YOUR OWN TAX ADVISERS AS TO YOUR SPECIFIC TAX
CONSEQUENCES RELATING TO THE REORGANIZATION, INCLUDING TAX RETURN REPORTING
REQUIREMENTS AND THE APPLICABILITY AND EFFECT OF TAX LAWS OTHER THAN THOSE OF
THE UNITED STATES.
WILL THERE BE A MARKET FOR MY NEWLY ACQUIRED NARA BANCORP COMMON STOCK?
Nara Bank's common stock has traded on the Nasdaq National Market since January
29, 1998 under the symbol "NARA." If the holding company formation proceeds,
Nara Bancorp will list its shares of common stock on the Nasdaq National Market
under the proposed symbol "NARA". Nara Bancorp will file an application with
Nasdaq for such listing.
It is anticipated that the dividend policy of Nara Bancorp will be substantially
identical to the current policy of Nara Bank. So far, Nara Bank has not paid a
cash dividend to its shareholders. Nara Bank declared an eight percent (8%)
stock dividend to shareholders of record as of May 10, 1999, which was paid on
May 17, 1999, and another eight percent (8%) stock dividend to shareholders of
record as of April 14, 2000, which was paid on May 10, 2000. Whether any stock
or cash dividends will be paid in the future will be determined by the board of
directors of Nara Bancorp.
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WILL THE ACCOUNTING TREATMENT CHANGE?
No. Because the reorganization is a reorganization with no change in ownership
interests, the consolidated financial statements of Nara Bancorp and the
financial statements of Nara Bank will retain the former basis of accounting of
Nara Bank and will be substantially identical to Nara Bank's financial
statements prior to the reorganization.
WHAT ABOUT DISSENTING SHAREHOLDERS RIGHTS?
Federal law entitles a shareholder of a national bank who does not vote for the
reorganization to demand payment by Nara Bank of the fair or appraised value for
his shares. If you wish to do so, you must deliver to Bon T. Goo, Executive Vice
President and Chief Financial Officer, Nara Bank, N.A., 3701 Wilshire Boulevard,
Suite 220, Los Angeles, CA 90010, before voting on Proposal I, written notice
identifying yourself and stating your intention to demand appraisal of and
payment for your shares. This written notice must be separate from and in
addition to any proxy or vote against Proposal I. A proxy or vote against the
reorganization does not, by itself, constitute a demand for appraisal. In
addition to making written notice of your demand, you must not vote in favor of
the reorganization. If you return a signed proxy but do not specify your vote,
you will be deemed to have voted in favor of the reorganization agreement. If
you abstain from voting on the reorganization you will not be deemed to have
voted in favor of the reorganization.
Under the reorganization agreement, the obligations of Nara Bank, Interim Bank
and Nara Bancorp to consummate the reorganization are conditioned upon the
holders of not more than 5% of the outstanding shares electing to exercise their
rights as dissenting shareholders. Although the parties to the reorganization
agreement could waive this condition, none of them presently intends to do so.
If the reorganization is approved and adopted by the shareholders at the
meeting, Nara Bank will mail a further notice to all shareholders who timely
filed a written notice of intention to demand payment and who refrained from
voting in favor of the proposed reorganization. The further notice will include
the following:
- information concerning where and when a request for payment must
be sent;
- instructions as to where and when a shareholder must deposit the
certificates representing his or her shares of common stock in
order to obtain payment;
- a form to be used for requesting payment which will include a
request for certification of the date on which the shareholder
or the person on whose behalf the shareholder dissents, acquired
beneficial ownership of the shares; and
- a copy of Section 215a of the National Bank Act.
The time set by Nara Bank for receipt of the demand for payment and deposit of
the certificates by shareholders shall not be less than 30 days from the mailing
of the notice. A SHAREHOLDER WHO FAILS TO TIMELY FILE THE FORM FOR REQUESTING
PAYMENT OR FAILS TO DEPOSIT HIS OR HER COMMON STOCK
20
CERTIFICATES, AS REQUIRED BY THE NOTICE, SHALL NOT HAVE ANY RIGHT TO RECEIVE
PAYMENT OF THE FAIR VALUE OF HIS OR HER SHARES. A dissenting shareholder shall
retain all other rights of a shareholder until those rights are modified by
consummation of the reorganization.
A vote against the reorganization agreement, whether cast by proxy or in person
at the special meeting, shall not, in itself, constitute the required written
request for payment.
You may assert dissenters' rights as to fewer than all of your shares of the
common stock registered in your name only if you dissent with respect to all the
shares beneficially owned by any one person and notify Nara Bank of the name and
address of the beneficial owner or owners on whose behalf you dissent. You may
assert dissenters' rights with respect to shares owned beneficially but not
registered in your name if you submit to Nara Bank a written consent of the
record shareholder prior to commencement of the voting by the shareholders on
the reorganization agreement at the special meeting. You may not dissent with
respect to some but less than all shares owned beneficially, whether or not the
shares so owned are registered in your name.
The discussion in this section is only a summary of the rights and obligations
of dissenting shareholders and is qualified in its entirety by reference to the
provisions of Section 215a of the National Bank Act, which provisions are
reproduced and set forth in full in APPENDIX I to this proxy
statement/prospectus. You should read APPENDIX I carefully since if you fail to
follow the procedures set forth in Section 215a of the National Bank Act
regarding dissenters' rights, you will waive your appraisal rights. You may wish
to consult independent legal counsel before exercising dissenters' rights.
Except as set forth herein, notification of the beginning or end of any
statutory period will not be given by Nara Bank to any dissenting shareholders.
DESCRIPTION OF NARA BANCORP COMMON STOCK
- Nara Bancorp's certificate of incorporation authorizes the
issuance of up to 10,000,000 shares of Nara Bancorp Stock,
$0.001 par value. Only the 600 shares issued to initially
capitalize Nara Bancorp are currently outstanding.
- Holders of Nara Bancorp common stock are entitled to one vote,
in person or by proxy, for each share of Nara Bancorp common
stock held of record in the shareholder's name on the books of
Nara Bancorp as of the record date on any matter submitted to
the vote of the shareholders.
- Each share of Nara Bancorp common stock has the same rights,
privileges and preferences as every other share and will share
equally in Nara Bancorp's net assets upon liquidation or
dissolution.
- Nara Bancorp common stock has no preemptive, conversion or
redemption rights or sinking fund provisions and all of the
issued and outstanding shares of Nara Bancorp Common Stock, when
issued, will be fully paid and nonassessable.
21
- Nara Bancorp's shareholders are entitled to dividends when, and
if, declared by Nara Bancorp's board of directors out of funds
legally available therefor, and after satisfaction of the prior
rights of holders of outstanding preferred stock, if any
(subject to certain restrictions on payment of dividends imposed
by the laws of Delaware).
HOW DO THE RIGHTS OF HOLDERS OF NARA BANCORP COMMON STOCK COMPARE TO THOSE OF
NARA BANK COMMON STOCK?
As a result of the reorganization, the holders of Nara Bank common stock will
become shareholders of Nara Bancorp, a Delaware corporation. As a holder of Nara
Bancorp stock, you will have substantially the same rights that you currently
have with your shares of Nara Bank common stock, other than as modified by
Delaware law.
The discussion below is a summary of various rights of shareholders, it is not
intended to be a complete statement of all rights. The discussion is qualified
in its entirety by reference to the certificate of incorporation and bylaws of
Nara Bancorp (both which are attached as APPENDIX III and IV, respectively, to
this proxy statement/prospectus) and relevant provisions of Delaware and federal
law.
WHAT IS THE AUTHORIZED CAPITAL STOCK?
- Nara Bank's articles of association provide for 10,000,000
authorized shares of common stock with a par value of $3 per
share.
- Nara Bancorp's certificate of incorporation provides for
10,000,000 shares of authorized common stock with a par value of
$0.001 per share.
- Approximately 5,461,092 shares of such stock will be
outstanding immediately prior to the effective date of the
reorganization. Nara Bank's articles of association do not
provide for another class of stock.
- There are currently only 600 shares of Nara Bancorp common stock
outstanding which will be repurchased by Nara Bancorp
immediately upon the consummation of the reorganization.
- Approximately 5,461,092 shares of Nara Bancorp common stock
will be outstanding immediately after the consummation of the
reorganization. Nara Bancorp's certificate of incorporation does
not provide for another class of stock.
Under Nara Bancorp's certificate of incorporation and Nara Bank's articles of
association, shares of common stock may be issued from time to time by their
boards of directors without the approval of the shareholders.
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HOW WILL LIQUIDATION RIGHTS DIFFER?
In the event of liquidation, holders of common stock of Nara Bancorp and Nara
Bank are entitled to similar rights to assets distributable to shareholders on a
pro rata basis after satisfaction of liabilities.
HOW WILL REDEMPTION RIGHTS DIFFER?
Nara Bank has limited ability to buy its outstanding shares from its
shareholders. Nara Bancorp is empowered by Delaware law to buy its shares of
stock from its shareholders at the mutual accord of the shareholder and Nara
Bancorp.
ARE THERE ANY PREEMPTIVE RIGHTS?
Neither Nara Bancorp's certificate of incorporation nor Nara Bank's articles of
association provide for preemptive rights.
HOW WILL INDEMNIFICATION PROVISIONS DIFFER?
Nara Bank's bylaws authorize the indemnification of agents of Nara Bank
pursuant to the California Corporations Code.
Nara Bancorp's certificate of incorporation provides for indemnification of any
and all directors and officers under Section 145 of the Delaware General
Corporation Law (the "DGCL").
Nara Bancorp's bylaws provide that each person who was or is made a party or is
threatened to be made a party to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or she,
or a person of whom he or she is the legal representative, is or was a director
or officer of Nara Bancorp, is or was serving at the request of Nara Bancorp
as a director or officer of another corporation or of a partnership, joint
venture, trust or other enterprise (including service with respect to employee
benefit plans), or was a director or officer of a foreign or domestic
corporation which was a predecessor of Nara Bancorp or any other enterprise
at the request of such predecessor corporation, whether the basis of such
proceeding is alleged action in an official capacity as a director or officer or
in any other capacity while serving as a director or officer shall be
indemnified and held harmless by Nara Bancorp to the fullest extent authorized
by the DGCL, as such law may be amended, but only to the extent that such
amendment permits broader indemnification rights than were permitted to Nara
Bancorp prior to such amendment, against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid or to be in settlement) reasonably incurred or suffered by such
person in connection therewith. The indemnification continues as to a person who
has ceased to be a director or officer and inures to the benefit of his or her
heirs, executors and administrators.
Nara Bancorp is required to indemnify any such person seeking indemnification in
connection with a proceeding initiated by such person only if such proceeding
was authorized by the Board of Directors of Nara Bancorp. The right to
indemnification conferred in Nara Bancorp's bylaws is a contract right and
includes the right to be paid by Nara Bancorp for expenses incurred in defending
any such proceeding in advance of its final disposition provided Nara Bancorp
has received an undertaking, by or on behalf of such director or officer, to
repay all amounts so advanced if it shall ultimately be determined that such
director or officer is entitled to be indemnified under the bylaws or otherwise.
Pursuant to its bylaws, Nara Bancorp may provide, by action of the Board of
Directors, indemnification to its employees and agents to the same extent that
it indemnifies directors and officers. Nara Bancorp's bylaws create a right to
indemnification for each indemnifiable party whether or not the proceeding to
which the indemnification relates arose in whole or in part prior to adoption of
the bylaws (or the adoption of the comparable provisions of the Nara Bank's
bylaws).
The rights of indemnification provided in Nara Bancorp's bylaws are not
exclusive of any other rights which may be available under Delaware law, any
insurance or other agreement, by vote of shareholders or disinterested directors
or otherwise. In addition, Nara Bancorp's bylaws authorize Nara Bancorp to
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of Nara Bancorp, whether or not Nara Bancorp would have the
power to provide indemnification to such person under Delaware law. Nara Bank
currently maintains a standard policy of directors' and officers' liability
insurance. The indemnification provisions of Nara Bancorp's bylaws may, in some
instances, cover acts of directors and officers that may not be covered by
insurance.
The indemnification provisions of Nara Bancorp's bylaws may reduce the
likelihood of shareholder derivative litigation against directors and may deter
shareholders or management from bringing a lawsuit against directors for breach
of their duty of care, including a suit relating to an attempt to change control
of Nara Bancorp, even though such an action, if successful, might otherwise have
benefited Nara Bancorp and its shareholders. Because the indemnification
provisions reduce the financial risk of serving as a director of Nara Bancorp,
the Board of Directors may be deemed to have a personal interest in including
these provisions in the bylaws, at the potential expense of the shareholders.
Notwithstanding the above, these provisions have been included in Nara Bancorp's
bylaws in recognition of the need to provide such protection to directors and
officers of Nara Bancorp so as to attract and retain the best personnel
available. Although in the past Nara Bank has been able to recruit and retain
qualified individuals to serve in these capacities, the Board of Directors of
Nara Bancorp recognizes the complexities and pressures placed on directors of
publicly held corporations, and especially companies involved in the complex and
rapidly-changing financial services industry. Therefore, the Board of Directors
of the Nara Bancorp believes that the time, efforts and talents of officers and
directors of Nara Bancorp should be directed to managing Nara Bancorp's
business, rather than being forced to act defensively out of concern over the
potential for costly personal litigation.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons controlling Nara Bancorp pursuant
to provisions of Nara Bancorp's bylaws or any indemnification agreements that
may be entered into with Nara Bancorp's directors and officers, Nara Bancorp has
been informed that, in the opinion of the SEC, such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
At the present time, other than where Nara Bank and its directors,
officers, employees or agents have been named as defendants in legal actions
arising in the ordinary course of business, none of which, in the opinion of the
Nara Bank's management, is material, Nara Bank and Nara Bancorp are not aware of
any pending or threatened litigation against Nara Bank or Nara Bancorp for which
indemnification may be sought, and there has been no recent litigation involving
directors, officers, employees or agents Nara Bank that would have been affected
by any of the indemnity provisions discussed above.
HOW WILL GOVERNING LAW DIFFER?
Nara Bank is governed by the laws of the United States and the National Bank
Act.
Nara Bancorp is governed by laws of the State of Delaware and the DGCL. Under
certain circumstances, Nara Bancorp could be subject to some laws of the State
of California and certain provisions of the California Corporations Code.
Under Section 2115 of the California Corporations Code, certain provisions of
California law are applicable to a corporation incorporated outside of
California if:
- the corporation transacts intrastate business in California and the
average of its California property, payroll and sales factors (as
defined in the California Revenue and Taxation Code) with respect to
it is more than fifty percent (50%) during its latest full income
year;
- more than one-half of its outstanding voting securities are held of
record by persons having addresses in California; and
- the corporation is not otherwise exempt (as described below).
A company may be exempted from the above provisions of California law if the
corporation:
- has securities listed on the New York Stock Exchange or the American
Stock Exchange or
- has securities which are qualified for trading as a national market
security on the National Association of Securities Dealers Automated
Quotation System if such corporation has at least 800 holders of its
equity securities as of the record date of its most recent annual
meeting of stockholders (a "Listed Corporation").
If a company is not exempted from Section 2115, and determined to be subject to
California law, provisions of California law which could be applicable include,
without limitation: those provisions relating to (i) the shareholders' right to
remove a director only for cause (under California law, a director may be
removed with or without cause by a majority vote), provide for a classified
board of directors (only a listed corporation may have a classified board of
directors under California law, otherwise, under California law directors must
be elected annually), and call special meetings (under California law, the
holders of shares entitled to cast not less than 10 percent of the votes at the
meeting may call such a meeting; however, under Delaware law, stockholders may
not call a special meeting unless provided for in the certificate of
incorporation or the by-laws), (ii) cumulative voting in elections of directors
(cumulative voting is mandatory under California law), (iii) the right to take
action by written consent (cannot be eliminated in California) and (iv) the
company's ability to indemnify its officers, directors and employees (which is
more limited in California than in Delaware). Notwithstanding the foregoing, any
company may provide for a classified board of directors, eliminate cumulative
voting or both, if it is a Listed Corporation.
Since, upon the reorganization, Nara Bancorp will be a Listed Corporation with
more than 800 holders, California corporate law should not apply. If Nara
Bancorp were to cease being a Listed Corporation or have fewer than 800 holders,
the California law detailed above could then apply.
HOW WILL VOTING RIGHTS DIFFER?
- Each share of Nara Bank common stock and each share of Nara
Bancorp common stock is entitled to one vote per share.
- That National Bank Act provides for cumulative voting in the
election of directors, which is not available to shareholders of
Nara Bancorp.
Cumulative voting entitles a shareholder to vote as many votes as equals the
number of shares the shareholder owns multiplied by the number of directors to
be elected. A shareholder may cast all his votes for a single candidate or
distribute such votes among any or all of the candidates.
HOW WILL SHAREHOLDER ACTION WITHOUT A MEETING DIFFER?
Pursuant to the National Bank Act, any action that is required or permitted to
be taken by Nara Bank's shareholders at an annual or special meeting may be
taken by a written consent signed by all the shareholders entitled to vote on
the matter.
Nara Bancorp's bylaws provide that any action that is required or permitted to
be taken by shareholders at an annual or special meeting may be taken by a
written consent without a meeting, if the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote were
present and voted, signed the consent.
HOW WILL SHAREHOLDER VOTE ON BUSINESS COMBINATIONS DIFFER?
In general and pursuant to the National Bank Act, approval of a business
combination (a merger or sale of assets) involving Nara Bank requires the
approval of a majority of the board of directors as well as a favorable vote of
not less than 66 2/3% of the outstanding shares.
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Nara Bancorp's charter documents do not have such a provision; however, Section
203 of the Delaware General Corporation Law provides Nara Bancorp with
anti-takeover protection. See "How Will Certain Anti-Takeover Provisions Differ?
- Delaware Anti-Takeover Statute."
HOW WILL SPECIAL MEETINGS OF SHAREHOLDERS DIFFER?
Nara Bank's articles of association provide that a special meeting of the
shareholders may be called by, among others by, a holder or holders of 10% or
more of the outstanding voting shares.
Nara Bancorp's certificate of incorporation does not contain such a provision,
but the bylaws provide that a special meeting of the shareholders may be called
by, among others, a holder or holders of 10% or more of the outstanding voting
shares.
HOW WILL DIVIDENDS DIFFER?
As a national banking association, Nara Bank may not declare a dividend without
the approval of the Comptroller of the Currency if the total of dividends
declared by that bank in a calendar year exceeds the total of profits for that
year combined with its retained profits of the preceding two years. The
Comptroller of the Currency may also restrict the payment of dividends under its
general supervisory and enforcement powers.
Under Delaware law, Nara Bancorp may pay dividends out of surplus or, in the
event that no surplus exists, out of net profits for the fiscal year in which
the dividend is declared, or its net profits for the preceding fiscal year,
subject to certain limitations for the benefit of preferred shares, if any.
HOW WILL AMENDMENTS TO CHARTER AND BYLAWS DIFFER?
In general, Nara Bank's articles of association and bylaws may be amended by a
favorable vote of the majority of the outstanding voting stock. Under most
circumstances, the bylaws of a national bank may also be amended by the board of
directors.
Amendments to Nara Bancorp's certificate of incorporation require the approval
of a majority vote of Nara Bancorp's board of directors and also by a majority
of the outstanding shares of Nara Bancorp's voting stock. Nara Bancorp's bylaws
may be amended by a majority vote of the board of directors or the affirmative
vote of a majority of the total votes eligible to be voted at a duly constituted
meeting of shareholders.
HOW WILL THE BOARD OF DIRECTORS DIFFER?
Nara Bank's articles of association provide that the number of directors shall
not be less than five (5) nor more than twenty-five (25), with the exact number
fixed by a resolution of the board or shareholders. The number of directors is
currently fixed at six (6).
Nara Bancorp's certificate of incorporation provides that the number of
directors shall be fixed by the bylaws, which provides that the number of
directors shall be not less than five (5) nor
24
more than twenty-five (25) with the exact number of directors fixed by a
resolution of the board. The number of directors has been fixed at six (6).
Directors of Nara Bank are elected annually for a one year term. Directors of
Nara Bancorp will also be elected annually for a one year term.
In general, the removal of a director in a national bank or the removal of a
director of Nara Bancorp requires a vote of a majority of the shareholders at a
meeting.
HOW WILL THE NOMINATION TO THE BOARD OF DIRECTORS DIFFER?
Nara Bank's articles of association require shareholders to comply with certain
prior notice provisions in connection with the nomination of persons to become
directors of Nara Bank. Failure to comply with these provisions may result in
the nomination being disregarded.
Nara Bancorp's bylaws contain similar prior notice provisions. Failure to comply
with these provisions will result in the nomination being disregarded.
HOW WILL DISSENTERS' RIGHTS DIFFER?
Shareholders of a national bank which will not survive a merger or consolidation
are entitled to dissenters' rights substantially in the form described in "What
About Dissenting Shareholders Rights?"
Under Delaware law, appraisal rights are generally available for shares of any
class or series of a corporation in a merger or consolidation; provided that,
except in certain circumstances, no such rights are available for the shares of
any class or series of stock which, at the record date for the meeting held to
approve such transaction, were either (1) listed on a national securities
exchange or (2) held of record by more than 2,000 shareholders; and further
provided that no rights are available to shareholders of the surviving
corporation if the merger did not require their approval.
HOW WILL CERTAIN ANTI-TAKEOVER PROVISIONS DIFFER?
Attempts to acquire control of financial institutions have recently become
increasingly common. Takeover attempts which have not been negotiated with and
approved by the board of directors present to shareholders the risks of a
takeover on terms which may be less favorable than might otherwise be available.
A transaction which is negotiated and approved by the board of directors, on the
other hand, can be carefully planned and undertaken at an opportune time in
order to obtain maximum value of Nara Bancorp for its shareholders, with due
consideration given to matters such as the management and business of the
acquiring corporation and maximum strategic development of Nara Bancorp's
assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of Nara Bancorp and cause it to incur great expense. Although a
tender offer or other takeover attempt may be made at a price substantially
above the current market prices, such offers are sometimes made for less than
all of the outstanding shares of a target company. As a result, shareholders
25
may be presented with the alternative of partially liquidating their investment
at a time that may be disadvantageous, or retaining their investment in an
enterprise which is under different management and whose objectives may not be
similar to those of the remaining shareholders.
Once the reorganization is effective and Nara Bancorp is listed on Nasdaq, it
will be covered by the anti-takeover provisions in Delaware law. This could have
the effect of deterring takeover offers. The board of directors believes that
the Delaware anti-takeover provisions described below are prudent and in the
best interests of Nara Bancorp and its shareholders. Although these provisions
may discourage a future takeover attempt in which shareholders might receive a
premium for their shares over the then current market price and may make removal
of incumbent management more difficult, the board of directors believes that the
benefits of these provisions outweigh their possible disadvantages. Management
is not aware of any current effort to effect a change in control of Nara
Bancorp.
The following discussion is a general summary of material provisions of Nara
Bancorp's certificate of incorporation and bylaws, and certain other regulatory
provisions, which may be deemed to have an "anti-takeover" effect.
DIRECTORS. Certain provisions of the bylaws will impede changes in majority
control of the board of directors. Nara Bancorp's bylaws provide that:
- the size of the board of directors may be increased or decreased
either by a majority vote of the whole board or a majority vote
of the outstanding capital stock entitled to vote;
- any vacancy occurring in the board of directors, including a
vacancy created by an increase in the number of directors, shall
be filled for the remainder of the unexpired term by a majority
vote of the directors then in office;
- a director, in general, may only be removed by the affirmative
vote of a majority of the shares eligible to vote; and
- nominations for election to the Board of Directors may be made
by the Board of Directors or by any shareholder of any
outstanding capital stock of Nara Bancorp entitled to vote for
the election of directors. Nominations, other than those made by
or on behalf of the management of Nara Bancorp, shall be made in
writing and be delivered or mailed to the president of Nara
Bancorp not less than 14 days nor more than 50 days prior to any
meeting of shareholders called for the election of directors. If
less than 21 days' notice of the meeting is given to the
shareholders, theses nominations shall be mailed or delivered to
the president of Nara Bancorp before the close of business on
the seventh (7) day following the day on which the notice of
meeting was mailed. This notification shall contain the name and
address of each proposed nominee, the principal occupation of
each proposed nominee, the total number of shares of capital
stock of Nara Bancorp for each proposed nominee, the name and
residence address of the notifying shareholder, and the number
of shares of capital stock of Nara Bancorp owned by the
notifying shareholder.
26
Nominations not made in accordance with these procedures may be disregarded by
the chairman of the meeting, and upon his instructions, the vote tellers may
disregard all votes cast for each such nominee.
RESTRICTIONS ON CALL OF SPECIAL MEETINGS. The bylaws provide that a special
meeting of shareholders may be called by the board of directors or by holders of
10% or more of the voting stock of Nara Bancorp.
ACTION WITHOUT A MEETING OF SHAREHOLDERS. The bylaws provide that shareholders
may not consent in writing, without a meeting, to the taking of any action
unless the holders of outstanding stock having not less than the minimum number
of votes that would be necessary to authorize or take such action at a meeting
at which all shares entitled to vote on such an issue were present and voted.
AUTHORIZATION OF COMMON STOCK. The certificate of incorporation authorizes
10,000,000 shares of Nara Bancorp common stock. Nara Bancorp is authorized to
issue common stock from time to time. In the event of a proposed merger, tender
offer or other attempt to gain control of Nara Bancorp that the board of
directors does not approve, it might be possible for the board of directors to
authorize the issuance of shares of common stock that would impede the
completion of such a transaction. An effect of the possible issuance of common
stock, therefore, may be to deter a future takeover attempt. The board of
directors has no present plans or understandings for the issuance of any common
stock.
DELAWARE ANTI-TAKEOVER STATUTE. The Delaware General Corporation Law provides
that buyers who acquire more than 15% of the outstanding stock of a Delaware
corporation, such as Nara Bancorp, are prohibited from completing a hostile
takeover of such corporation for three years. However, the takeover can be
completed if:
(i) the buyer, while acquiring the 15% interest, acquires at least 85%
of the corporation's outstanding stock (the 85% requirement excludes
shares held by directors who are also officers and certain shares held
under employee stock plans), or
(ii) the takeover is approved by the target corporation's board of
directors and two-thirds of the shares of outstanding stock of the
corporation (excluding shares held by the bidder). The foregoing
provisions of the Delaware General Corporation Law do not apply to
Delaware corporations which do not have a class of voting stock listed
on a national exchange, authorized for quotation on an inter-dealer
quotation system of a registered national securities association or held
of record by more than 2,000 shareholders. Once the reorganization is
effective, Nara Bancorp will be subject to the Delaware anti-takeover
statute, and governed by this provision.
The anti-takeover provisions contained in Section 203 of the Delaware General
Corporation Law and described above could have the effect of discouraging an
acquisition of Nara Bancorp, and could, accordingly, under certain
circumstances, discourage transactions which might otherwise have a favorable
effect on the price of Nara Bancorp common stock. These provisions also may have
the effect of discouraging a future takeover attempt in which shareholders might
receive a premium for their shares over then current market prices. As a result,
shareholders who may
27
desire to participate in such a transaction may not have an opportunity to do
so. At the present time, your board of directors is not aware of any effort that
might be made to acquire control of Nara Bancorp or Nara Bank.
DESCRIPTION OF NARA BANCORP ORGANIZATION
Nara Bancorp was organized under the laws of Delaware on June 5, 2000. In order
to effect the reorganization, each of the present directors of Nara Bank
purchased 100 shares of Nara Bancorp common stock at $10.00 per share. These
purchases provided Nara Bancorp's initial capitalization of $6,000 and also
served to provide "director qualifying" shares required by the National Bank Act
in connection with the organization of Interim Bank. Upon consummation of the
reorganization, these 600 shares will be repurchased by Nara Bancorp for the
same aggregate $6,000. A copy of the stockholders agreement relating to these
shares is attached as APPENDIX V to this proxy statement/prospectus.
Nara Bancorp has not yet engaged in any business activity.
WHO ARE THE OFFICERS OF NARA BANCORP?
The current officers of Nara Bancorp are:
[Download Table]
Benjamin B. Hong President and Chief Executive
Officer
Bon T. Goo Executive Vice President and
Chief Financial Officer
Min J. Kim Executive Vice President and
Chief Credit Officer
Initially, Messrs. Hong, Goo and Kim will not receive any direct remuneration
from Nara Bancorp. They will continue to serve in their current capacities with
Nara Bank which, initially, will be solely responsible for their direct
remuneration, if any.
It is anticipated that, after the reorganization, Nara Bancorp will add
additional officers and employees and that Nara Bank and other subsidiaries of
Nara Bancorp, if any, will pay cash dividends and management fees to support the
expenses of Nara Bancorp. There are presently no specific plans, arrangements or
understandings with respect to such matters.
Each of Nara Bancorp's directors is currently a director of Nara Bank. It is
anticipated that directors of Nara Bancorp initially will not receive fees for
their attendance at board meetings or committee meetings. However, these persons
will continue to receive directors' fees for serving on the board of directors
of Nara Bank.
WILL NARA BANCORP BE SUBJECT TO ANY SUPERVISION AND REGULATION?
Nara Bancorp will be a bank holding company within the meaning of the Bank
Holding Company Act of 1956, as amended, and will be registered as such with,
and subject to the super-
28
vision of, the Federal Reserve Board. Nara Bancorp will be required to file with
the Federal Reserve Board quarterly and annual reports and such additional
information as the Federal Reserve Board may require pursuant to the Bank
Holding Company Act. The Federal Reserve Board regularly conducts examinations
of bank holding companies and their subsidiaries.
As a bank holding company, Nara Bancorp will be required to obtain the approval
of the Federal Reserve Board:
- before it may acquire all or substantially all of the assets of
any bank, or ownership or control of the voting shares of any
bank if, after giving effect to such acquisition of shares, Nara
Bancorp would own or control more than 5% of the voting shares
of such bank.
- before the merger or consolidation of Nara Bancorp and another
bank holding company.
Nara Bancorp will also be prohibited by the Bank Holding Company Act, except in
certain statutorily prescribed instances, from:
- acquiring direct or indirect ownership or control of more than
5% of the outstanding voting shares of any company that is not a
bank or bank holding company; and
- from engaging, directly or indirectly, in activities other than
those of banking, managing or controlling banks or furnishing
services to its subsidiaries.
However, Nara Bancorp may, subject to the prior approval of the Federal Reserve
Board, engage in any, or acquire shares of companies engaged in, activities that
are deemed by the Federal Reserve Board to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto.
Under the Federal Reserve Board's regulations;
- a bank holding company is required to serve as a source of
financial and managerial strength to its subsidiary banks and
may not conduct its operations in an unsafe and unsound manner;
- in serving as a source of strength to its subsidiary banks, a
bank holding company should stand ready to use available
resources to provide adequate capital funds to its subsidiary
banks during periods of financial stress or adversity and should
maintain the financial flexibility and capital-raising capacity
to obtain additional resources for assisting its subsidiary
banks.
A bank holding company's failure to meet its obligations to serve as a source of
strength to its subsidiary banks will generally be considered by the Federal
Reserve Board to be an unsafe and unsound banking practice or a violation of the
Federal Reserve Board's regulations or both.
29
New federal banking law, the Gramm - Leach - Bliley Act of 1999, will give Nara
Bancorp the option to file for "Financial Holding Company" status and engage in
additional "financial activities" under the new legislation, such as merchant
banking and insurance underwriting, if Nara Bancorp and Nara Bank meet certain
standards.
ARE THERE ANY RESTRICTIONS ON TRANSFER OF FUNDS TO NARA BANCORP BY NARA BANK?
Nara Bancorp is a legal entity separate and distinct from Nara Bank. A
significant portion of Nara Bancorp's revenues, including the funds available
for the payment of dividends, if any, and other operating expenses, will be
dividends paid by Nara Bank.
There are statutory and regulatory limitations on the amount of dividends which
may be paid to Nara Bancorp by Nara Bank and on any distribution or return of
capital.
DESCRIPTION OF INTERIM BANK
At the direction of Nara Bank's board of directors, Interim Bank is being
organized under the laws of the United States as an interim national bank in
accordance with the regulations of the Comptroller of the Currency. Prior to the
consummation of the reorganization, Interim Bank will conduct no business with
the public. The organization of Interim Bank for the proposed merger with Nara
Bank is required by the National Bank Act which requires that a national bank
may only merge with another national bank.
The initial capital of Interim Bank will be $240,000 which will be borrowed by
Nara Bancorp from a correspondent bank. With the approval of the Comptroller of
the Currency, this $240,000 will be repaid to Nara Bancorp by Nara Bank at the
effective time of the reorganization. In turn, Nara Bancorp will repay this
amount to the correspondent bank.
DESCRIPTION OF NARA BANK
Nara Bank opened for business on June 16, 1989 under the name "United Citizens
National Bank" as a national banking association. The institution's name was
changed to "Nara Bank, National Association" on January 27, 1994. Its
headquarters office is located at 3701 Wilshire Boulevard, Suite 220, Los
Angeles, California 90010. Its telephone number is (213) 639-1700. The Olympic
office, which was opened at the inception of Nara Bank on June 16, 1989, is
still located at 2727 West Olympic Boulevard, Los Angeles, California.
In May 1996, Nara Bank opened a full service branch in Los Angeles' downtown
garment district at 1122 Wall Street, Los Angeles, California. The Torrance and
San Fernando Valley offices were opened in June and November of 1997,
respectively. The Torrance office, a small-scale branch inside a Korean
supermarket, is located at 3030 West Sepulveda Boulevard, Torrance, California,
and the Valley Office, also a mini-market branch, is located at 17639 Sherman
Way, Unit C, Van Nuys, California. In December 1997, Nara Bank opened a full
branch in the Silicon Valley area, located at 1102 East El Camino Real,
Sunnyvale, California. In April 1998, Nara Bank opened a limited service loan
production office in Seattle, located at 1010 S. 336th Street, Suite 203,
Federal Way, Seattle, Washington. Two additional mini-market branches were
opened during 1998. The Glendale mini-market branch was opened in June 1998
30
at 831 N. Pacific Avenue, Glendale, California and the Buena Park mini-market
branch was opened in September 1998, at 5301 Beach Boulevard, Buena Park,
California. In September 1998, the headquarters was relocated to its present
address. In October 1998, Nara Bank purchased the Flushing branch of Korea
Exchange Bank, located at 136-40 39th Avenue, Flushing, New York. In August
1999, Nara Bank opened a limited service loan production office in Chicago,
located at 5901 N. Cicero Ave., Suite 508, Chicago, Illinois. In August 2000,
Nara Bank opened a full service branch in Oakland, California located at 2250
Broadway, Oakland, California.
Nara Bank has no subsidiaries. The Federal Deposit Insurance Corporation insures
Nara Bank's deposits up to the maximum legal limits and Nara Bank is a member of
the Federal Reserve System.
On February 25, 2000, Nara Bank acquired Korea First Bank of New York for a
purchase price of approximately $8.7 million and thereby took over its three
branches located at 29 West 30th Street, New York, New York; 78-14 Roosevelt
Avenue, Jackson Heights, New York and 138-02 Northern Boulevard, Flushing, New
York. The 39th Avenue Flushing branch was closed and consolidated with the North
Boulevard branch.
BUSINESS OF NARA BANK
Nara Bank offers a full range of commercial banking and consumer financial
services for its customers: individuals and small to medium-sized businesses in
our market areas. Nara Bank accepts deposits and originates a variety of loans
including commercial loans, trade finance, Small Business Administration loans,
automobile and various consumer loans. Nara Bank also offers equipment lease
financing and postdated check discount and factoring. To better meet its
customers' needs, Nara Bank's mini-market branches generally offer extended
hours from 10 a.m. to 8 p.m. Each of Nara Bank's branches, except for the
Wilshire office, operates 24-hour automated teller machines. Nara Bank provides
courier services to qualifying clients and has personal banking officers for
Nara Bank's key customers to better support their banking needs. Nara Bank
honors merchant drafts for both VISA and MasterCard and provides debit cards
services to its customers. In addition, Nara Bank offers travelers' checks, safe
deposit boxes, notary public and other customary bank services. Nara Bank also
offers 24-hour banking by telephone and recently introduced non-transactional
Internet banking through its web site, www.narabankna.com.
A significant amount of Nara Bank's operating income and net income depends on
the difference between the interest revenue received from interest-earning
assets and the interest expense paid on interest-bearing liabilities. However,
interest rates are highly sensitive to many factors that are beyond Nara Bank's
control, such as general economic conditions and the policies of various
governmental and regulatory authorities, in particular those of the Federal
Reserve Board. Although the business of Nara Bank may vary with local and
national economic conditions, such variations do not appear to be seasonal in
nature.
NARA BANK BANKING SERVICES
Nara Bank offers a full range of commercial banking services for its customers:
individuals and small to medium-sized businesses initially in Koreatown and
Downtown Garment District of Los Angeles and now expanded its business into
greater Los Angeles, Silicon Valley in Northern
31
California, Seattle, and New York city. It accepts deposits and originates a
variety of loans including commercial loans, Trade Finance, Small Business
Administration (SBA) loans, automobile and various consumer loans. Since 1996,
Nara Bank has offered equipment lease financing and added new services of
postdated check discount and factoring.
Nara Bank offers a complete range of business and consumer financial services.
To better meet customers' needs, Nara Bank's mini market branches offer extended
hours from 10 a.m. to 8 p.m. Nara Bank provides courier services to qualifying
clients and has personal banking officers for its key customers to better
support their banking needs. Nara Bank honors merchant drafts for both VISA and
MasterCard and provides debit cards services to its customers. In addition, Nara
Bank offers traveler's checks, safe deposit boxes, notary public and other
customary bank services. Nara Bank also offers 24 hour banking by telephone and
recently introduced Internet banking. All the bank's branches, except for the
Downtown Office, operate 24-hour automated teller machines.
Commercial Banking
Nara Bank provides a full range of commercial banking services primarily to
minority-owned-professional firms and small-to-medium-sized businesses in the
Greater Los Angeles area. Nara Bank has expanded its services to the Korean
American communities in Northern California, Seattle, and New York. These
services include equipment lease financing, postdated check discount and
factoring. Most commercial loans are revolving lines of credit and term loans, a
majority of which are secured by business assets. Nara Bank strives to gain a
competitive edge in these segments by promptly responding to its customers'
needs and establishing personal and professional relationships with customers.
Total commercial loans (including equipment leasing of about $5.1 million) at
December 31, 1999 were approximately $100.2 million, which accounts for 42.0% of
the bank's total loans of $238.8 million as of that day.
International Banking
Nara Bank has established the Trade Finance Department to serve international
trade customers. This department issues and advises letters of credit for export
and import businesses. It also purchases bills from export businesses at
discounts and makes loans to international traders. These loans are usually
collateralized with inventories and accounts receivables. As of December 31,
1999 outstanding letters of credit, including domestic letters of credit,
totaled $20.4 million. The total amount of International loans increased from
$16.9 million in 1998 to $23.6 million in 1999.
Automobile Loans
To diversify its loan portfolio, Nara Bank started originating automobile loans
in early 1995. The marketing efforts have been based primarily on referrals from
automobile dealers. The Bank also offers fixed-rate loans to buyers of new and
previously owned automobiles, who are not qualified for automobile dealers' most
preferential loan rates. During 1999, these loans increased from $24.7 million
to $25.9 million.
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Small Business Administration Loans
Nara Bank started originating Small Business Administration (SBA) loans in 1993.
SBA loans are loans whose major portion (70% to 95% of the principal of each
loan) is guaranteed by the Small Business Administration (commonly known as the
SBA) which is a federal agency established in 1953 to support and promote small
business in the United States. As such, SBA lending can provide Nara Bank with
attractive returns with less risk. In general, these loans have longer repayment
schedules than conventional financing so those borrowers may have lower monthly
payments.
Nara Bank established a separate SBA loan department to expedite its services
related to SBA loans. The department is staffed by experienced loan officers who
provide assistance to qualified individuals and existing businesses. Nara Bank
received the SBA Preferred Lenders Program status on January 16, 1997. Nara Bank
is able to perform the processing and servicing and liquidating tasks associated
with the SBA loans.
COMPETITION AND SERVICE AREA
Nara Bank has been providing its banking services primarily in the areas of
Koreatown in Los Angles, the Mid-Wilshire commercial district and the downtown
central business district of Los Angeles. However, in recent years, Nara Bank
expanded its service areas to Torrance, Van Nuys in San Fernando Valley,
Glendale, and Buena Park and to the Silicon Valley area in Northern California,
Seattle, the and the New York area. A majority of Nara Bank's customers are
Korean-Americans who came from Korea. In the Los Angeles area, the competition
in Nara Bank's service areas is intense. While the market is dominated by a few
mega banks with many offices operating over a wide geographic area, Nara Bank's
major competitors are relatively smaller community banks which focus their
marketing efforts on Korean-American businesses in Nara Bank's primary service
areas. In the Silicon Valley area, unlike Los Angeles, Nara Bank competes with
major banks and other local community banks. In the New York area, competition
is less severe than in Los Angeles, although, main competition comes from
Korea-based banks.
EMPLOYEES
As of December 31, 1999, Nara Bank had 180 full-time equivalent employees. Nara
Bank's employees are not represented by a union or covered by a collective
bargaining agreement. Nara Bank has entered into a written employment agreement
with Benjamin B. Hong, its President and Chief Executive Officer. Nara Bank does
not have any other written contract with its other employees.
EMPLOYEE BENEFIT PLANS
1989 STOCK OPTION PLAN
Nara Bank adopted a stock option plan in 1989 under which, as amended, options
may be granted to key employees and directors of Nara Bank. Options are
exercisable in such installments, which need not be equal, as shall be
determined at the time of grant. Option prices
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may not be less than the fair market value at the date of grant. There are a
total of 423,976 outstanding options under the 1989 Stock Option Plan. No new
grants may be made under the 1989 Stock Option Plan, which expired in accordance
with its terms on April 15, 1999.
DEFERRED COMPENSATION PLAN
In 1996, Nara Bank established a deferred compensation plan that permits
eligible officers and directors to defer a portion of their compensation. The
deferred compensation, together with accrued accumulated interest, is
distributable in cash after an individual's retirement or termination of
service. Nara Bank's deferred compensation liabilities at December 31, 1999,
1998 and 1997 amounted to approximately $469,605, $314,000 and $185,000,
respectively, which are included on our balance sheets in other liabilities.
Nara Bank has insured the lives of certain officers and directors who
participate in the deferred compensation plan, to assist in the funding of the
deferred compensation liabilities. Nara Bank is the owner and beneficiary of
these insurance policies. At December 31, 1999, 1998 and 1997, the cash
surrender value of these policies was $4,850,529, $4,717,741 and $4,620,755,
respectively.
2000 LONG TERM INCENTIVE PLAN
At the Nara Bank 2000 annual meeting, shareholders of Nara Bank approved the
2000 Long Term Incentive Plan as part of a continuing program to attract, retain
and motivate its senior executives, directors and employees. The 2000 Long Term
Incentive Plan authorizes the granting of stock options, stock appreciation
rights, restricted unit grants, performance share grant, and other equity-based
stock and cash incentives to the senior executives, directors and employees.
There are approximately 230 employees, senior executives and directors who may
be eligible to participate in the plan.
This incentive plan allows Nara Bank to grant a maximum 100,000 options and
other awards to any individual in any calendar year. The total number of shares
that may be granted under this plan is 200,000. This incentive plan is
administered by either the board of directors or a compensation committee of the
board of directors composed of two or more non-employee directors. The 2000 Long
Term Incentive Plan authorizes the administrator to grant stock appreciation
rights, restricted stock or unit awards, and performance awards. The
administrator also determines who will receive awards, the types of the awards,
the date of grant of the awards and the terms and provisions of each award
grant.
Options granted to employees and qualifying as incentive stock options eligible
for possible long-term capital gains treatment on sale of the stock under
Section 422 of the Internal Revenue Code are at a purchase price not less than
100% of the fair market value of Nara Bank common stock on the date of grant. If
a qualifying option is granted to any employee owning greater than 10% of our
outstanding common stock, then the exercise price for that employee shall be not
less than 110% of the fair market value of our common stock on the date of
grant. Options granted to non-employees or those who do not meet the
requirements of Section 422 of the Internal Revenue Code are at a purchase price
of not less than 85% of the fair market value of Nara Bank common stock on the
date of grant.
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Options may be exercised in whole or in part by cash or, if acceptable to the
administrator, in shares of common stock already owned by the participant. An
optionee cannot transfer an option or other award otherwise than by will or by
the laws of descent and distribution and all options and other awards are
exercisable, during the participant's lifetime, only by the participant.
Each option terminates ten years from the date on which it was granted or five
years in the case of an incentive stock option granted to a holder of 10% or
more of our common stock., except where the terms of an option agreement require
its prior termination. Awards other than stock options terminate in accordance
with the time period established by the administrator at the time of the award
grant. When a participant's employment terminates (for any reason) within six
months of the date of any award grant, the award immediately terminates.
401(k) SAVINGS PLAN
In 1996, Nara Bank established a 401(k) savings plan, which is open to all
eligible employees who are 21 years old or over and have completed one year of
service. The plan requires Nara Bank to match 50 percent of a participant's
contribution up to 8 percent of the participant's aggregate compensation during
the plan year. Vesting in employer contributions is 20 percent after two years
of service and 20 percent per year thereafter. Total employer contributions to
the plan amounted to approximately $105,000, $47,000, and $46,000 for 1999,
1998, and 1997, respectively.
Employee Stock Ownership Plan
In 1996, Nara Bank established an Employee Stock Ownership Plan, which is open
to all eligible employees who have completed one year of service. The Employee
Stock Ownership Plan repurchased 5,000, 4,933, and 7,000 shares of common stock
at $10.00, $9.50-$12.50, and $4.125 per share from its issued and outstanding
shares during 1999, 1998, and 1997, respectively. Nara Bank's contributions to
the Employee Stock Ownership Plan were approximately $52,000, $52,000, and
$61,000 for 1999, 1998, and 1997, respectively.
STOCK OPTIONS
Nara Bank did not grant any stock options or stock appreciation rights to any
executive officers or directors in 1999.
The following table sets forth the number of shares acquired by each Named
Officer upon the exercise of stock options during 1999 and the number of shares
covered by both exercisable and unexercisable stock options held by each Named
Officer at December 31, 1999. Also reported are values of "in-the-money"
options, which represent the positive spread between the respective exercise
prices of outstanding stock options and $9.50 per share, which was the closing
price of the common stock on the Nasdaq National Market on December 31, 1999:
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AGGREGATED OPTION EXERCISES IN 1999 AND VALUES
[Enlarge/Download Table]
NUMBER OF SECURITIES
SHARES UNDERLYING OPTION AT VALUE OF IN-THE-MONEY
ACQUIRED ON VALUE 12/31/99 OPTIONS AT 12/31/99
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
------------- -------- -------- ------------------------- -------------------------
Benjamin Hong 20,000 $60,000 80,000/30,000 $ 520,000(1)/$105,000(2)
Bon T. Goo -0- N/A 20,000/10,000 $ 130,000(3)/$ 35,000(4)
Min J. Kim 10,000 $30,000 10,000/10,000 $ 65,000(5)/$35,000(4)
---------------------------------------------------------------------------------------------------------------------------------
(1) Using a fair market value of $9.50 per share which was the closing price
of Nara Bank's common stock on December 31, 1999, and an exercise price
of $3.00 per share, these options had a value of $6.50 per share, times
110,000 shares.
(2) Using a fair market value of $9.50 per share which was the closing price
of Nara Bank's common stock on December 31, 1999, and an exercise price
of $6.00 per share, these options had a value of $3.50 per share, times
30,000 shares.
(3) Using a fair market value of $9.50 per share which was the closing price
of Nara Bank's common stock on December 31, 1999, and an exercise price
of $3.00 per share, these options had a value of $6.50 per share, times
20,000 shares.
(4) Using a fair market value of $9.50 per share which was the closing price
of Nara Bank's common stock on December 31, 1999, and an exercise price
of $6.00 per share, these options had a value of $3.50 per share, times
10,000 shares.
(5) Using a fair market value of $9.50 per share which was the closing price
of Nara Bank's common stock on December 31, 1999, and an exercise price
of $3.00 per share, these options had a value of $6.50 per share, times
10,000 shares.
EMPLOYMENT AGREEMENT WITH OUR PRESIDENT AND CHIEF EXECUTIVE OFFICER
Benjamin B. Hong was appointed President and CEO of Nara Bank pursuant to an
employment agreement effective June 30, 1994. Mr. Hong's employment agreement
was for an initial term of five years from such date with an option to renew
such agreement for an additional four years. Mr. Hong's initial contract expired
in June 1999 but was renewed according to its terms for the additional four-year
period. Mr. Hong's employment agreement provides for a base salary of $120,000
in the initial year, plus profit sharing equal to a minimum of 7% of the pre-tax
income of Nara Bank, an automobile allowance, one month's paid vacation per year
and payment of monthly country club dues and business-related expenses. Pursuant
to his employment agreement Mr. Hong has been granted stock options to purchase
100,000 shares of Common Stock of Nara Bank at an exercise price of $3.00 per
share. Such options expire at the end of his employment period. The terms of
these options are subject to the terms and conditions set forth in Nara Bank's
1989 Stock Option Plan. In 1997, Mr. Hong was granted an additional 30,000
options under the 1989 Stock Option Plan. All the options granted to Mr. Hong
have vested and are exercisable by him.
Nara Bank has not entered into any other written employment agreements with any
of its officers except as described above.
SHARE PRICES
On November 22, 2000 there were 733 shareholders of record of Nara Bank common
stock and 48 holders of Nara Bank warrants. The following table sets forth, for
the calendar quarters indicated, the high and low market price per share of Nara
Bank common stock as traded on the Nasdaq National Market since January 29,
1997.
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[Download Table]
QUARTER ENDED HIGH LOW
------------- ---- ---
1997:
----
First quarter $ 4.25 $ 4.00
Second quarter $ 5.50 $ 4.00
Third quarter $ 6.75 $ 5.50
Fourth quarter $ 9.25 $ 6.75
1998:
-----
First quarter $ 11.63 $ 9.25
Second quarter $ 13.63 $ 11.75
Third quarter $ 12.25 $ 10.00
Fourth quarter $ 9.75 $ 8.00
1999:
-----
First quarter $ 10.75 $ 8.00
Second quarter $ 10.75 $ 9.875
Third quarter $ 10.25 $ 9.50
Fourth quarter $ 10.00 $ 9.375
(through December 27, 1999)
2000
----
First quarter $ 9.375 $ 7.00
Second quarter $ 9.375 $ 8.00
Third quarter $ 13.50 $ 9.25
The closing price per share of Nara Bank common stock, as reported on the Nasdaq
National Market as of November 9, 2000, the day before the reorganization
agreement was executed, was $13.875.
PROPERTIES
Nara Bank has entered into ten leases and owns one building. Nara Bank owns and
leases properties for use as bank premises and otherwise owns real estate taken
in foreclosure. Nara Bank presently leases a total of approximately 18,402
square feet for the Corporate Office on the half of second floor and half of
third floor, located at 3701 Wilshire Boulevard, Los Angeles, California. The
term of the lease is for 10 years commencing on July 7, 1998, with 2 consecutive
renewal options of 5 years each. Pursuant to this lease, Nara Bank pays,
effective October 15, 1998, $22,082 per month for both floors. The base lease
will be increased to $25,763 per month starting in the sixth year. In addition
to the original lease, Nara Bank also leased approximately 992 square feet on
the second floor of the same building. Nara Bank entered into an agreement on
November 6, 1998 for the same term as the original lease. Nara
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Bank pays a monthly installment of $1,190 for the first five (5) years and
$1,388.80 for the remaining five (5) years.
The lease for the Olympic Office at 2727 West Olympic Boulevard in the Koreatown
of Los Angeles was amended on October 1, 1998 after the Corporate Office
relocated to the Wilshire district as mentioned above. With an expiration of the
lease for the majority of the second floor, the Bank has amended the agreement
for 11,477 square feet. Nara Bank occupies 8,408 square feet of the first floor
at a monthly installment of $22,281 and 3,069 square feet on the second floor at
a monthly installment of $4,940, commencing October 1, 1998. In additional to
the base rent, Nara Bank pays the common area maintenance charge of $5,279 per
month. The Bank leases a parking space from a neighboring church on a goodwill
basis. Nara Bank is responsible for all expenses to maintain this parking lot.
The third lease is for Downtown branch office located at the Downtown Garment
District of Los Angeles from the City Market Fashion Plaza. Its space is
approximately 3,400 square feet on the first floor of a three-story building.
Effective May 1, 1998, the monthly base rent increased to $9,235 from $9,144 in
the previous year. Nara Bank additionally pays approximately $2,113 for common
area maintenance and for the employee lounge rent. The base monthly rent is
subject to adjustment annually in accordance with the changes in the Consumer
Price Index, not to exceed 6.0% per year. The term of the lease is 5 years and 8
months beginning on May 1, 1996 with two consecutive renewal options of 5 years
each, subject to increases in rent as provided for during the original term of
the lease.
The fourth lease is for the Torrance market branch office, located at 3030 West
Sepulveda Boulevard Torrance, California. The Torrance office occupies
approximately 425 square feet inside the Korean supermarket. The term of the
lease is 4 years commencing May 1, 1997 and ending April 30, 2001 with two
consecutive 3 year options to renew. The base rent is $1,000 per month; however,
Nara Bank is not obligated to pay any rent for one full year. The first payment
will start on May 1, 1998. Starting May 1, 2002, the base monthly rent is
subject to adjustment annually in accordance with the changes in the Consumer
Price Index, not to exceed 6% per annum.
The fifth lease is for the Valley Office located at 17639-C Sherman Way, Van
Nuys, California. It is located in an approximately 68,977 square feet shopping
center, occupying approximately 690 square feet. The term of the lease is for 10
years commencing October 1, 1997, ending October 31, 2007, with two consecutive
5 year options to renew. Its monthly basic rent is $2,000 with a common area
maintenance charge of approximately $300.
The sixth lease is for the Silicon Valley Office located at 1102 El Camino Real,
Sunnyvale, California. Its space is approximately 4,200 square feet. The term of
the lease is for 5 years, commencing on August 1, 1997 and terminating on July
31, 2002. It has two consecutive 5 year terms options to renew. Nara Bank pays a
monthly rent of $7,560 and is subject to adjustment annually in accordance with
the changes in the Consumer Price Index, not to exceed 5% per annum.
The seventh lease is for the Seattle Loan Production Office located at 1010
South 336th Street, Suite 203, Federal Way, Seattle, Washington. The office
space is approximately 702 square feet.
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Nara Bank pays a monthly rent of $1,024 commencing April 1, 1998, which will be
increased to $1,054 on April 1, 1999. The term of the lease is for two (2)
years.
The eighth lease is for Buena Park market branch office located at 5301 Beach
Boulevard, Buena Park, California. It is located inside the Super 1 Hannam
supermarket occupying approximately 650 square feet. The term of the lease is
for 5 years commencing May 1, 1998 with 5 consecutive renewal options of 5 years
each. Nara Bank pays a month rent of $3,000.
The ninth lease is a sublease for Glendale market branch office located at 831
North Pacific Avenue, Glendale, California. It is located inside the H.K.
Supermarket occupying approximately 1,001 square feet. Nara Bank pays a monthly
rent of $3,500 commencing July 1, 1998, subject to adjustment annually in
accordance with the changes in the Consumer Price Index, no less than 3%. In
addition to the base rent, Nara Bank pays $320.32 for subtenant's share of
common area maintenance charge. The term of this sublease is for 5 years with 2
consecutive renewal options of 5 years each.
In connection with the acquisition of Korea First Bank of New York on February
25, 2000, Nara Bank acquired ownership of additional buildings located at 29
West 30th Street in New York (Manhattan Office) and 78-14 Roosevelt Avenue,
Jackson Heights (Jackson Heights Office), and took over one additional lease.
The Manhattan Office is a twelve-story building. The bank uses the basement,
first, second, and twelfth floors and leases the rest of the building, which is
occupied by 13 tenants. The Jackson Heights Office is 15,417 square feet and
used solely by Nara Bank. The office located at 138-02 Northern Boulevard,
Flushing, New York has a 30-year lease contract expiring on March 31, 2022. This
lease calls for current monthly payments of $18,375 per month with a 4% increase
every three years. The next increase will become effective on March 31, 2002.
Nara Bank owns the property at 136-40 39th Avenue, Flushing, New York. Office
space of the building totals of 4,786 square feet on the first floor and 3,260
square feet on the second floor. Nara Bank purchased the Flushing branch of
Korea Exchange Bank in October, 1998. The purchase price of the building was
$1,194,000 and is depreciated at $4,000 per month for 25 years.
NARA BANK'S 1999 SUBORDINATED NOTES
On September 30, 1999, Nara Bank issued five-year subordinated capital notes in
the aggregate amount of $4.3 million with a stated interest rate of 9 percent,
maturing on September 30, 2004. Interest on the notes is payable quarterly and
no scheduled payments of principal are due prior to maturity. Nara Bank may
redeem the notes prior to their maturity as of or after September 30, 2002. The
notes qualify as Tier 2 risk-based capital under the Office of the Comptroller
of the Currency guidelines for assessing regulatory capital. For the total
risk-based capital ratio, the amount of notes that qualify as capital is reduced
as those notes approach maturity. At December 31, 1999, $3.4 million, which
represents 80% of the total outstanding amount of the notes, qualified as
risk-based capital.
NARA BANK'S 2000 SUBSCRIPTION OFFERING
In the third quarter of 2000, Nara Bank issued 175,000 units at a purchase price
of $40 per unit. Each unit consisted of four shares of common stock and one
detachable, non-transferable three-year warrant to purchase one share of common
stock. The warrant is exercisable based on a sliding scale of prices which
depends upon when the warrant is exercised. A warrant exercised within one year
of its grant date will be exercisable at $11, a warrant exercised after one year
and within two years of its grant will be exercisable at $12 and a warrant
exercised within three years from the grant date will be exercisable at $13.
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SUPERVISION AND REGULATION
GENERAL
Banks are extensively regulated under both federal and state law. This
regulation is intended primarily for the protection of depositors and the
deposit insurance fund and not for the benefit of stockholders of Nara Bank. Set
forth below is a summary description of the material laws and regulations which
relate to the operations of Nara Bank. The description is qualified in its
entirety by reference to the applicable laws and regulations.
NARA BANK
Nara Bank, as a national banking association, is subject to primary supervision,
examination, and regulation by the Office of the Comptroller of the Currency. To
a lesser extent, Nara Bank is also subject to regulations of the Federal Deposit
Insurance Corporation, which provides Nara Bank with insurance of accounts, and
the Federal Reserve Board. If, as a result of an examination of Nara Bank, the
Comptroller of the Currency should determine that the financial condition,
capital resources, asset quality, earnings prospects, management, liquidity or
other aspects of Nara Bank's operations are unsatisfactory or that Nara Bank or
its management is violating or has violated any law or regulation, various
remedies are available to the Comptroller of the Currency. Such remedies include
the power to enjoin "unsafe or unsound practices," to require affirmative action
to correct any conditions resulting from any violation or practice, to issue an
administrative order that can be judicially enforced, to direct an increase in
capital, to restrict the growth of Nara Bank, to assess civil monetary
penalties, and to remove officers and directors. The Federal Deposit Insurance
Corporation has similar enforcement authority, in addition to its authority to
terminate Nara Bank's deposit insurance in the absence of action by the
Comptroller of the Currency and upon a finding that Nara Bank is in an unsafe or
unsound condition, is engaging in unsafe or unsound activities, or that its
conduct poses a risk to the deposit insurance fund or may prejudice the interest
of its depositors.
Various requirements and restrictions under the laws of the United States and
the State of California affect the operations of Nara Bank. Federal and
California statutes and regulations relate to many aspects of Nara Bank's
operations, including reserves against deposits, ownership of deposit accounts,
interest rates payable on deposits, loans, investments, mergers and
acquisitions, borrowings, dividends, locations of branch offices, capital
requirements and disclosure obligations to depositors and borrowers.
Nara Bank's securities are registered with the Comptroller of the Currency under
the Securities Exchange Act of 1934, as amended. As such, Nara Bank is subject
to the information, proxy solicitation, insider trading, and other requirements
and restrictions of the Exchange Act of 1934.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL OF
PROPOSAL 1.
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SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted by Nara Bank to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of its fiscal
year ending December 31, 1999. Nara Bank shareholders approved the acquisition
by merger of Korea First Bank of New York at a special meeting held on February
2, 2000. Shareholders, elected directors, approved the 2000 Long Term Incentive
Plan and ratified the appointment of auditors at the annual meeting of
shareholders held on August 16, 2000.
PROPOSALS OF SHAREHOLDERS
Under certain circumstances, shareholders are entitled to present proposals at
shareholder meetings. Any such proposal to be included in the proxy statement
for Nara Bank's 2001 annual meeting of shareholders must be submitted by a
shareholder prior to January 16, 2001, in a form that complies with applicable
regulation.
If the holding company formation is completed, Nara Bancorp will be the only
shareholder of Nara Bank and there will be no proxy statement for Nara Bank's
2001 special meeting. Accordingly, any such proposal to be included in Nara
Bancorp's proxy statement must be submitted by a shareholder to Nara Bancorp
prior to the above date and in a form that complies with applicable regulation.
FINANCIAL INFORMATION
Other than those included in the most recent 10-KSB and 10-Q, copies of which
are enclosed, no additional financial statements have been included in this
proxy statement/prospectus. It is the position of the board of directors of Nara
Bank that additional financial statements would not be material or relevant in
order for the shareholders to make an informed judgement to approve the
reorganization and reorganization agreement since the consolidated financial
statements of Nara Bancorp immediately following the reorganization will be
substantially identical to the financial statements of Nara Bank immediately
prior to the reorganization.
ANNUAL REPORT TO SHAREHOLDERS
Nara Bank's annual report for the year ended December 31, 1999 on Form 10-KSB
containing audited financial statements and the unaudited quarterly report for
the period ended September 30, 2000 on Form 10-Q are included in this mailing to
shareholders.
The financial statements as of December 31, 1999 and 1998 and for each of the
three years in the period ended December 31, 1999 included in this prospectus
have been audited by Deloitte & Touche, LLP, independent auditors, as stated in
their reports appearing herein, and have been so included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
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LEGAL PROCEEDINGS
Nara Bank is a party to ordinary routine litigation incidental to its business,
none of which is considered likely to have a materially adverse effect on the
bank. Neither Nara Bank nor any of its property is subject to any other material
pending legal proceedings.
WHERE YOU CAN FIND MORE INFORMATION
Nara Bank currently files reports, proxy statements and other information with
the Comptroller of the Currency pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended. You may inspect and copy such reports, proxy
statements and other information at the public facilities maintained by the
Comptroller of the Currency at 250 E Street, S.W., Washington, DC 20219. You may
obtain copies of such material from the Public Reference Section of the
Comptroller of the Currency at the same address at prescribed rates.
NARA BANK WILL PROVIDE YOU, WITHOUT CHARGE, A COPY OF ITS ANNUAL REPORT FOR THE
YEAR ENDED DECEMBER 31, 1999, INCLUDING FINANCIAL STATEMENTS AND SCHEDULES, AS
FILED WITH THE COMPTROLLER OF THE CURRENCY PURSUANT TO THE EXCHANGE ACT OF 1934.
YOU MAY OBTAIN A COPY BY WRITING TO MR. BON T. GOO, NARA BANK, N.A., 3701
WILSHIRE BOULEVARD, SUITE 220, LOS ANGELES, CA 90010.
If the holding company formation becomes effective, Nara Bancorp will own all
the shares of Nara Bank common stock. As a result, Nara Bank will then
de-register the Nara Bank common stock under the Exchange Act of 1934. As the
successor to Nara Bank, Nara Bancorp will register its shares of common stock
with the Securities and Exchange Commission pursuant to Section 12 of the
Securities Exchange Act of 1934 prior to the consummation of the holding company
formation. Thereafter, Nara Bancorp will file reports, proxy statements and
other information with the Securities and Exchange Commission. You will be able
to inspect and copy all or any part of these documents, including exhibits
thereto, which Nara Bancorp will file in the future at the public facilities
maintained by the Securities and Exchange Commission at:
[Download Table]
450 Fifth Street, N.W., 500 West Madison Street, 7 World Trade Center,
Room 1024, Suite 1400, Suite 1300,
Washington, DC 20549 Chicago, IL 60661-2511 New York, NY 10048
You will also be able to obtain copies of such material from the Public
Reference Section of the Securities and Exchange Commission at 450 Fifth Street,
N.W., Washington DC 20549, at prescribed rates. The Securities and Exchange
Commission also maintains a website at http://www.sec.gov and can be reached at
800-SEC-0330.
42
OTHER MATTERS
The board of directors knows of no other matters which will be brought before
the meeting, but if such matters are properly presented to the meeting, proxies
solicited hereby will be voted in accordance with the judgment of the persons
holding such proxies. All shares represented by duly executed proxies will be
voted at the meeting in accordance with the terms of such proxies.
NARA BANK, N.A.
By: /s/ Bon T. Goo
--------------------------------------
Secretary
Los Angeles, California
December 12, 2000
43
APPENDIX I
i
UNITED STATES CODE ANNOTATED
TITLE 12. BANKS AND BANKING
CHAPTER 2--NATIONAL BANKS
SUBCHAPTER XVI--CONSOLIDATION AND MERGER
Copr. (C) West Group 2000. No claim to orig. U.S. Govt. Works
Current through P.L. 106-274, approved 9-22-2000
Section 215. Consolidation of banks within the same State
(a) In general
Any national bank or any bank incorporated under the laws of any State may, with
the approval of the Comptroller, be consolidated with one or more national
banking associations located in the same State under the charter of a national
banking association on such terms and conditions as may be lawfully agreed upon
by a majority of the board of directors of each association or bank proposing to
consolidate, and be ratified and confirmed by the affirmative vote of the
shareholders of each such association or bank owning at least two-thirds of its
capital stock outstanding, or by a greater proportion of such capital stock in
the case of such State bank if the laws of the State where it is organized so
require, at a meeting to be held on the call of the directors after publishing
notice of the time, place, and object of the meeting for four consecutive weeks
in a newspaper of general circulation published in the place where the
association or bank is located, or, if there is no such newspaper, then in the
paper of general circulation published nearest thereto, and after sending such
notice to each shareholder of record by certified or registered mail at least
ten days prior to the meeting, except to those shareholders who specifically
waive notice, but any additional notice shall be given to the shareholders of
such State bank which may be required by the laws of the State where it is
organized. Publication of notice may be waived, in cases where the Comptroller
determines that an emergency exists justifying such waiver, by unanimous action
of the shareholders of the association or State bank.
(b) Liability of consolidated association; capital stock; dissenting
shareholders
The consolidated association shall be liable for all liabilities of the
respective consolidating banks or associations. The capital stock of such
consolidated association shall not be less than that required under existing law
for the organization of a national bank in the place in which it is located:
Provided, That if such consolidation shall be voted for at such meetings by the
necessary majorities of the shareholders of each association and State bank
proposing to consolidate, and thereafter the consolidation shall be approved by
the Comptroller, any shareholder of any of the associations or State banks so
consolidated who has voted against such consolidation at the meeting of the
association or bank of which he is a stockholder, or who has given notice in
writing at or prior to such meeting to the presiding officer that he dissents
from the plan of consolidation, shall be entitled to receive the value of the
shares so held by him when such consolidation is approved by the Comptroller
upon written request made to the consolidated association at any time before
thirty days after the date of consummation of the consolidation, accompanied by
the surrender of his stock certificates.
(c) Valuation of shares
The value of the shares of any dissenting shareholder shall be ascertained, as
of the effective date of the consolidation, by an appraisal made by a committee
of three persons, composed of (1) one selected by the vote of the holders of the
majority of the stock, the owners of which are entitled to payment in cash; (2)
one selected by the directors of the consolidated
banking association; and (3) one selected by the two so selected. The valuation
agreed upon by any two of the three appraisers shall govern. If the value so
fixed shall not be satisfactory to any dissenting shareholder who has requested
payment, that shareholder may, within five days after being notified of the
appraised value of his shares, appeal to the Comptroller, who shall cause a
reappraisal to be made which shall be final and binding as to the value of the
shares of the appellant.
(d) Appraisal by Comptroller; expenses of consolidated association; sale and
resale of shares; State appraisal and consolidation law
If, within ninety days from the date of consummation of the consolidation, for
any reason one or more of the appraisers is not selected as herein provided, or
the appraisers fail to determine the value of such shares, the Comptroller shall
upon written request of any interested party cause an appraisal to be made which
shall be final and binding on all parties. The expenses of the Comptroller in
making the reappraisal or the appraisal, as the case may be, shall be paid by
the consolidated banking association. The value of the shares ascertained shall
be promptly paid to the dissenting shareholders by the consolidated banking
association. Within thirty days after payment has been made to all dissenting
shareholders as provided for in this section the shares of stock of the
consolidated banking association which would have been delivered to such
dissenting shareholders had they not requested payment shall be sold by the
consolidated banking association at an advertised public auction, unless some
other method of sale is approved by the Comptroller, and the consolidated
banking association shall have the right to purchase any of such shares at such
public auction, if it is the highest bidder therefor, for the purpose of
reselling such shares within thirty days thereafter to such person or persons
and at such price not less than par as its board of directors by resolution may
determine. If the shares are sold at public auction at a price greater than the
amount paid to the dissenting shareholders the excess in such sale price shall
be paid to such shareholders. The appraisal of such shares of stock in any State
bank shall be determined in the manner prescribed by the law of the State in
such cases, rather than as provided in this section, if such provision is made
in the State law; and no such consolidation shall be in contravention of the law
of the State under which such bank is incorporated. (e) Status of consolidated
association; property rights and interests vested and held as fiduciary
The corporate existence of each of the consolidating banks or banking
associations participating in such consolidation shall be merged into and
continued in the consolidated national banking association and such consolidated
national banking association shall be deemed to be the same corporation as each
bank or banking association participating in the consolidation. All rights,
franchises, and interests of the individual consolidating banks or banking
associations in and to every type of property (real, personal, and mixed) and
choses in action shall be transferred to and vested in the consolidated national
banking association by virtue of such consolidation without any deed or other
transfer. The consolidated national banking association, upon the consolidation
and without any order or other action on the part of any court or otherwise,
shall hold and enjoy all rights of property, franchises, and interests,
including appointments, designations, and nominations, and all other rights and
interests as trustee, executor, administrator, registrar of stocks and bonds,
guardian of estates, assignee, receiver, and committee of estates of lunatics,
and in every other fiduciary capacity, in the same manner and to the same extent
as such rights, franchises, and interests were held or enjoyed by any one of the
consolidating banks or banking associations at the time of consolidation,
subject to the conditions hereinafter provided.
(f) Removal as fiduciary; discrimination
Where any consolidating bank or banking association, at the time of the
consolidation, was acting under appointment of any court as trustee, executor,
administrator, registrar of stocks and bonds, guardian of estates, assignee,
receiver, or committee of estates of lunatics, or in any other fiduciary
capacity, the consolidated national banking association shall be subject to
removal by a court of competent jurisdiction in the same manner and to the same
extent as was such consolidating bank or banking association prior
to the consolidation. Nothing contained in this section shall be considered to
impair in any manner the right of any court to remove the consolidated national
banking association and to appoint in lieu thereof a substitute trustee,
executor, or other fiduciary, except that such right shall not be exercised in
such a manner as to discriminate against national banking associations, nor
shall any consolidated national banking association be removed solely because of
the fact that it is a national banking association.
(g) Issuance of stock by consolidated association; preemptive rights
Stock of the consolidated national banking association may be issued as provided
by the terms of the consolidation agreement, free from any preemptive rights of
the shareholders of the respective consolidating banks.
CREDIT(S)
2000 Electronic Update
(Nov. 7, 1918, c. 209, Section 2, formerly Section 1, as added Sept. 8, 1959,
Pub.L. 86- 230, Section 20, 73 Stat. 460; renumbered Section 2 and amended Sept.
29, 1994, Pub.L. 103-328, Title I, Section 102(b)(4)(C), 108 Stat. 2351.)
HISTORICAL AND STATUTORY NOTES
Revision Notes and Legislative Reports
1959 Act. Senate Report No. 730, see 1959 U.S.Code Cong. and Adm.News, p. 2232.
1994 Acts. House Report No. 103-448 and House Conference Report No. 103-651, see
1994 U.S. Code Cong. and Adm. News, p. 2039.
Codifications
Provisions similar to those comprising this section were contained in sections 1
and 2 of Act Nov. 7, 1918, c. 209, 40 Stat. 1043, and section 3 of Act Nov. 7,
1918, c. 209, added Feb. 25, 1927, c. 191, Section 1, 44 Stat. 1225 (formerly
classified to sections 33 to 34a of this title) prior to the complete amendment
and renumbering of Act Nov. 7, 1918, by Pub.L. 86-230.
Amendments
1994 Amendments. Pub.L. 103-328, Section 102(b)(4)(C), added section and subsec.
(a) catchlines (previous catchlines were editorially supplied), and, in subsec.
(a), substituted "Any national bank" for "Any national banking association".
Short Title
1918 Acts. Section 1 of Act Nov. 7, 1918, c. 209, as added Sept. 29, 1994,
Pub.L. 103-328, Title I, Section 102(b)(4)(C), 108 Stat. 2351, provided that:
"This Act [enacting this subchapter] may be cited as the 'National Bank
Consolidation and Merger Act'."
12 U.S.C.A. Section 215
12 USCA Section 215
APPENDIX II
PLAN OF REORGANIZATION AND MERGER AGREEMENT
THIS PLAN OF REORGANIZATION AND MERGER AGREEMENT
("Agreement") is entered into as of November 10, 2000, by and between Nara Bank,
National Association ("Bank"), Nara Bancorp, Inc. ("Bancorp") and Nara Interim
Bank, National Association ("Interim Bank") to be joined in upon its formation,
for the sole purpose of consummating the reorganization provided for herein.
RECITALS AND UNDERTAKINGS
A. Bank is a national banking association subject to regulation and
supervision by the Office of the Comptroller of the Currency (the "OCC") with
its principal office in the City of Los Angeles, California. Interim Bank, upon
its formation, shall be is a national banking association subject to regulation
and supervision by the OCC with its principal offices in the City of Los
Angeles, California. Bancorp is a corporation organized and existing under the
laws of the State of Delaware with its principal offices in the City of Los
Angeles, California.
B. As of the date hereof, Bank has 10,000,000 shares of common stock, $3
par value per share ("Bank Common Stock"), authorized and 5,456,092 shares
issued and outstanding.
C. As of the date hereof, Interim Bank has 2000 shares of common stock,
$100 par value per share ("Interim Bank Common Stock"), authorized, all of which
will be outstanding with all outstanding shares owned by Bancorp at the time of
the Merger.
D. As of the date hereof, Bancorp has 10,000,000 shares of common stock,
$0.001 par value per share ("Bancorp Common Stock"), authorized of which 600
shares of Bancorp Common Stock will be outstanding at the time of the Merger
referred to herein.
E. The Boards of Directors of Bank, Interim Bank and Bancorp believe
that the Reorganization will permit greater flexibility in responding to the
changing financial requirements of banking customers and in meeting the
competition of other financial institutions.
NOW, THEREFORE, in consideration of the promises and the mutual
covenants, agreements, and undertakings of the parties herein set forth and for
the purpose of prescribing the terms and conditions of the Merger, the parties
hereto agree as follows:
SECTION 1.
GENERAL
1.1 THE MERGER. On the Effective Date as defined in Section 1.2, Bank
shall be merged with and into Interim Bank (the "Merger") with Interim Bank
being the surviving association (the "Surviving National Bank") and a subsidiary
of Bancorp (collectively, the "Reorganization"). The business of the Surviving
National Bank shall be that of a national banking association and the name of
the Surviving National Bank shall be "Nara Bank, National Association." This
business shall be conducted by the Surviving National Bank at its main office
1
located at 3701 Wilshire Blvd., Los Angeles, California 90010, and at the
legally established offices of Bank prior to the Merger.
1.2 EFFECTIVE DATE. The Merger described herein shall become effective
(as amended, if necessary, to conform to any requirements of law or governmental
authority or agency, which requirements are not materially in contravention of
any of the substantive terms hereof) at the date and time specified in a merger
approval issued by the OCC (the "Effective Date"). The Merger shall be in
accordance with the provisions of 12 USC 215a.
1.3 ARTICLES OF ASSOCIATION, BYLAWS, CERTIFICATE OF AUTHORITY, AND
DEPOSIT INSURANCE COVERAGE. At the close of business on the Effective Date, the
Articles of Association of Bank, as in effect immediately prior to such time on
the Effective Date, shall be the Articles of Association of the Surviving
National Bank, without change or amendment (until amended or repealed as
provided by law), the Bylaws of Bank shall be the Bylaws of the Surviving
National Bank, without change or amendment (until amended or repealed as
provided by law), and the insurance of deposits coverage of the Bank by the
Federal Deposit Insurance Corporation shall be the deposit insurance of the
Surviving National Bank.
1.4 DIRECTORS AND OFFICERS OF THE SURVIVING NATIONAL BANK. At the close
of business on the Effective Date, the directors and officers of Bank
immediately prior to such time on the Effective Date shall be the directors and
officers of the Surviving National Bank. Directors of the Surviving National
Bank shall serve until the next Annual Meeting of Shareholders of the Surviving
National Bank or until such time as their successors are elected and have
qualified.
1.5 CAPITALIZATION OF NARA BANCORP. For the purpose of facilitating the
transactions required for the Reorganization and pursuant to a Shareholders
Agreement, each of Benjamin B. Hong, Thomas Chung, Chang Hee Kim, Brian Woo,
Hyon Park, and Yong Hwan Kim (the "Initial Nara Bancorp Shareholders") shall
purchase one hundred (100) shares of the capital stock of Nara Bancorp at a
purchase price of ten dollars ($10.00) per share. The total amount of each
purchase shall be one thousand dollars ($1,000.00) and the aggregate amount of
the initial capitalization of Nara Bancorp shall be six thousand dollars
($6,000.00). Upon the consummation of the Reorganization, Nara Bancorp will be
obligated to repurchase for cash and each of the Initial Nara Bancorp
Shareholders will be obligated to resell to Nara Bancorp the above-mentioned one
hundred (100) shares at the repurchase price of ten dollars ($10.00) per share,
for a total repurchase price of one thousand dollars ($1,000.00). The aggregate
amount to be paid for the six hundred (600) shares repurchased is six thousand
dollars ($6,000.00).
1.6 CAPITALIZATION OF INTERIM BANK. For the purpose of facilitating the
transactions required for the Reorganization, the initial capital of Interim
Bank shall be $240,000, borrowed prior to the Reorganization from Sanwa Bank
California, and to be repaid upon consummation of the Reorganization.
1.7 EFFECT OF THE MERGER.
(a) RIGHTS AND PRIVILEGES. On and after the Effective Date, all
the rights, privileges, powers, franchises, facilities and immunities, as well
as all the properties, real, personal and mixed, tangible and intangible, of
Bank shall continue unaffected and unimpaired by the Merger. On and after the
Effective Date, the Surviving National Bank shall without further transfer,
possess all of the rights, privileges, powers, franchises, facilities, and
immunities, as well as all the properties, real, personal and mixed, tangible
and intangible, of Bank and Interim Bank.
(b) ASSUMPTION OF LIABILITIES. On and after the Effective Date,
the Surviving National Bank shall succeed to and be liable for all debts,
liabilities and other obligations, known or unknown, contingent or otherwise, of
Interim Bank and Bank, of any nature whatsoever, existing on the Effective Date
or attributable to the operations of Interim Bank or Bank as though the
Surviving National Bank had incurred them.
1.8 FURTHER ASSURANCES. Bank and Interim Bank each agree that at any
time, or from time to time, as and when requested by the Surviving National
Bank, or by its successors and assigns, it will execute and deliver, or cause to
be executed and delivered, in its name by its last acting officers, or by the
corresponding officers of the Surviving National Bank, all such conveyances,
assignments, transfers, deeds or other instruments, and will take or cause to be
taken such further or other action as the Surviving National Bank, its
successors or assigns may
2
deem necessary or desirable in order to evidence the transfer, vesting or
devolution of any property right, privilege or franchise or to vest or perfect
in or confirm to the Surviving National Bank, its successors and assigns, title
to and possession of all the property rights, privileges, powers, immunities,
franchises and interests referred to in this Section 1, or otherwise to carry
out the intent and purposes of this Agreement.
SECTION 2.
TREATMENT OF CAPITAL STOCK
2.1 STOCK OF INTERIM BANK. At the close of business on the Effective
Date, the shares of Interim Bank Common Stock issued and outstanding immediately
prior thereto shall be converted into a number of shares of common stock of
Surviving National Bank equal to the number of shares of Bank Common Stock
outstanding immediately prior to the Effective Date.
2.2 STOCK OF BANK. At the close of business on the Effective Date, each
share of Bank Common Stock issued and outstanding immediately prior thereto
shall, by virtue of the Merger described herein, be exchanged for one share of
fully paid nonassessable Bancorp Common Stock, in accordance with the provisions
of Paragraph 2.3.
2.3 EXCHANGE OF STOCK BY BANK SHAREHOLDERS. The exchange of the shares
of Bank provided in Paragraph 2.2 above shall occur automatically at the close
of business on the Effective Date without action by the holders thereof. Each
share certificate evidencing ownership of shares of Bank Common Stock thereupon
shall be deemed to evidence one share of Bancorp Common Stock. Each holder of
shares of Bank Common Stock may but is not required to surrender such holders
share certificate or certificates to Bancorp, or an Exchange Agent appointed by
Bancorp, and shall be entitled to receive in exchange therefor a certificate or
certificates representing the number of shares into which such holders shares
theretofore represented by a certificate or certificates so surrendered shall
have been converted.
2.4 STOCK OPTIONS. At the close of business on the Effective Date,
Bancorp will assume Bank's rights and obligations under Bank's 1989 Stock Option
Plan (the "Plan") and under each of the outstanding options and incentives
previously granted under the Plan (each such option and incentive existing
immediately prior to the Effective Date being an "existing award" and each such
option or incentive so assumed by Bancorp being called an "assumed award"), by
which assumption all rights of a grantee of an existing award relating to Bank
Common Stock shall become the same right with respect to Bancorp Common Stock on
a one for one basis. Each assumed award, subject to such modification as may be
required (and subject to the requirements of the Securities Act of 1933, as
amended and the California Blue Sky law), shall constitute a continuation of the
existing award substituting Bancorp for Bank. The price per share of Bancorp
Common Stock at which the assumed award (or any installment) may be exercised
shall be the price as was applicable to the purchase of Bank Common Stock
pursuant to the existing award, and all other terms and conditions applicable to
the assumed awards shall, except as herein provided, be unchanged. Upon
consummation of the Merger, the Plan shall be terminated and assumed awards
shall become awards made pursuant to Bancorp's 2000 Long Term Incentive Plan.
3
2.5 EMPLOYEE BENEFIT PLANS. On and after the Effective Date, the 1996
Employee Stock Ownership Plan and the 2000 Long Term Incentive Plan and the
Bank's obligations thereunder shall be assumed by Bancorp at the Effective Date
and shall be subject to the same terms and conditions as existed prior to the
Effective Date, subject to the requirements or the Securities Act of 1933, as
amended, and California Blue Sky Law. Each share of common stock of Bank held in
connection with either plans shall be converted into one share of Bancorp Common
Stock.
2.6 STOCK OF BANCORP. At the close of business on the Effective Date,
and after the occurrence described in Section 2.2 above, the 600 shares of
Bancorp Common Stock issued and outstanding immediately prior thereto shall, by
virtue of the Merger described herein, be repurchased and canceled.
SECTION 3.
APPROVALS
3.1 STOCKHOLDER APPROVALS. As soon as practicable, this Agreement shall
be duly submitted to shareholders of Bank, Interim Bank and Bancorp (the
"Shareholders") for the purpose of considering and acting upon this Agreement in
the manner required by law. The approval of this Agreement by the Shareholders
shall be deemed to include approval of such changes to this Agreement, if any,
as may be required from time to time by any bank regulatory agency or
department.
3.2 REGULATORY APPROVALS. Each of the parties hereto shall execute and
file with the appropriate regulatory authorities all necessary documents and
instruments and shall take every reasonable and necessary step and action to
comply with and to secure such regulatory approval of this Agreement and the
transactions contemplated herein as may be required by all applicable statutes,
rules and regulations, including without limitation the consents and approvals
referred to in Section 4.
SECTION 4.
CONDITIONS PRECEDENT
CONDITIONS PRECEDENT TO THE MERGER. Consummation of the Merger
described herein is subject to satisfaction of the following conditions:
4.1 Ratification and approval of this Agreement by the holders of not
less than two-thirds of the outstanding Shares of Bank, Interim Bank and
Bancorp, in accordance with the applicable provisions of law.
4.2 Obtaining all other consents and approvals, and satisfying all other
requirements, prescribed by law or otherwise, which are necessary for the Merger
described herein to be consummated, including without limitation: approvals from
the Federal Deposit Insurance Corporation and the OCC under the Bank Merger Act,
and the Board of Governors of the Federal Reserve System under the Bank Holding
Company Act of 1956, as amended and Section 225.17 of Regulation Y (12 C.F.R.
225.17) promulgated pursuant thereto, and authorizations, to
4
the extent necessary under applicable blue sky laws with respect to the
securities of Bancorp issued upon consummation of the Merger, and the
declaration as effective by the Securities and Exchange Commission of a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act") with respect to the securities of Bancorp issuable upon
consummation of the Merger.
4.3 Issuance of a favorable opinion by Manatt, Phelps & Phillips, LLP,
in form and substance satisfactory to each of the parties hereto and their
counsel, with respect to the tax consequences to the parties and their
stockholders of the Merger described herein.
4.4 Procuring all other consents or approvals, governmental or
otherwise, which in the opinion of counsel for Bank are or may be necessary to
permit or to enable the Surviving National Bank to conduct, upon and after the
Merger described herein, all or any part of the business and other activities in
which Bank will be engaged up to the time of such merger, in the same manner and
to the same extent Bank engages in such businesses and other activities
immediately prior to such merger.
4.5 Listing of the Shares of Bancorp on the Nasdaq National Market.
4.6 Performance by each of the parties hereto of all obligations under
this Agreement which are to be performed prior to the consummation of the Merger
described herein.
SECTION 5.
TERMINATION
TERMINATION OF THE MERGER. If any condition specified in Section
4 has not been fulfilled within a reasonable period of time (as determined by a
majority of the board of directors of any of the parties), or prior to the
Effective Date, a majority of the members of the Board of Directors of any of
the parties hereto has determined that:
(a) The number of shares of Bank Common Stock voting against the
Merger makes consummation of the Merger inadvisable; or
(b) Any action, suit, proceeding or claim relating to the Merger
described herein has been instituted, made or threatened which makes
consummation of the Merger inadvisable; or
(c) For any other reason consummation of the Merger is
inadvisable;
then this Agreement may be terminated at any time before the Merger becomes
effective. Upon termination, this Agreement shall be void and of no further
effect, and there shall be no liability by reason of this Agreement or the
termination thereof on the part of the parties or their respective directors,
officers, employees, agents or shareholders.
5
SECTION 6.
AMENDMENT, MODIFICATION, ETC.
6.1 AMENDMENT, MODIFICATION, ETC. Bank, Bancorp, and Interim Bank, by
mutual consent of their respective boards of directors, to the extent permitted
by applicable law, may amend, modify, supplement, and interpret this Agreement
in such manner as may be mutually agreed upon by them in writing at any time
before or after adoption thereof by shareholders of Bank, Bancorp, and Interim
Bank, as applicable; provided, however, that no such amendment, modification, or
supplementation shall change the number or kind of securities to be issued by
Bancorp in exchange for each security of Bank, or any other principal term,
except (i) by the affirmative action of such shareholders as required by law, or
(ii) the initial approval of this Agreement by Bank's Shareholders shall be
deemed to include approval of such changes to this Agreement, if any, as may be
required from time to time by any bank regulatory agency or department.
SECTION 7.
EXPENSES OF THE MERGER
EXPENSES OF THE MERGER. All expenses of the Merger, described
herein, including, without limitation, filing fees, printing costs, mailing
costs, accountant's fees and legal fees, shall be borne by the Surviving
National Bank or Bancorp, as applicable; provided, however, that if the Merger
is abandoned for any reason, then all of such expenses shall be borne by Bank.
SECTION 8.
MISCELLANEOUS
8.1 ENTIRE AGREEMENT. This Agreement embodies the entire agreement among
the parties and there have been and are no agreements, representations or
warranties among the parties with respect to the subject matter of this
Agreement other than those set forth herein or those provided for herein.
8.2 GOVERNING LAW. This Agreement has been executed in the State of
California and the laws of such State shall govern the validity and the
interpretation hereof and the performance by the parties hereto.
8.3 COUNTERPARTS. To facilitate the filing of this Agreement, any number
of counterparts hereof maybe executed and each such counterpart shall be deemed
to be an original instrument, but all such counterparts together shall
constitute but one instrument.
8.4 DISSENTING SHARES. Holders of shares of Bank common stock shall have
dissenters' rights in connection with the Merger pursuant to the provisions of
12 USC 215a(b).
6
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Plan of
Reorganization and Merger Agreement to be executed by their duly authorized
officers as of the day and year written herein.
NARA BANK, National Association NARA BANCORP, INC.
/s/ BENJAMIN B. HONG /s/ BENJAMIN B. HONG
------------------------------------- -------------------------------------
Benjamin B. Hong Benjamin B. Hong
President and Chief Executive Officer President and Chief Executive Officer
NARA INTERIM BANK, National Association
/s/ BENJAMIN B. HONG
-------------------------------------
Benjamin B. Hong
President and Chief Executive Officer
7
APPENDIX III
CERTIFICATE OF INCORPORATION
OF NARA BANCORP, INC.
I, the undersigned, for purposes of incorporating and organizing a
corporation under the General Corporation Law of the State of Delaware, do
execute this Certificate of Incorporation and do hereby certify as follows:
I.
The name of this corporation is NARA BANCORP, INC.
II.
The address of the registered office of the Corporation in the
State of Delaware is 9 East Loockerman Street, in the City of Dover, County of
Kent, 19901. The name and address of the Corporation's registered agent in the
State of Delaware is National Corporate Research, Ltd., 9 East Loockerman
Street, Dover, Delaware 19901.
III.
The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
IV.
The total number of shares of all classes of stock which the
corporation shall have authority to issue is ten million (10,000,000) shares of
Common Stock, $0.001 par value per share ("Common Stock"). Except to the extent
required by governing law, rule or regulation, the shares of capital stock may
be issued from time to time by the Board of Directors without further approval
of shareholders. The Corporation shall have the authority to purchase its
capital stock out of funds lawfully available therefor, which funds shall
include, without limitation, the Corporation's unreserved and unrestricted
capital surplus.
V.
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, repeal, alter,
amend and rescind any or all of the Bylaws of the corporation.
VI.
The number of directors of the corporation shall be fixed from
time to time by a bylaw or amendment thereof duly adopted by the Board of
Directors or by the stockholders.
VII.
The election of directors need not be by written ballot unless
the Bylaws of the corporation shall so provide.
VIII.
Meetings of stockholders may be held within or without the State
of Delaware, as the Bylaws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the corporation.
IX.
The corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of Delaware, as the same exists or as
may hereafter be amended and supplemented from time to time, indemnify any and
all directors and officers whom it shall have the power to indemnify under said
Section 145 from and against any and all of the expenses, liabilities, or other
matters referred to or covered by said Section, and the indemnification provided
for herein shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in their official
capacities and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a director or officer, and
shall inure to the benefit of the heirs, executors, and administrators of such a
person. To the fullest extent permitted by Delaware law, as it may be amended
and supplemented from time to time, a director of the corporation shall not be
liable to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director.
X.
The incorporator of the corporation is Michel Urich, whose
address is 11355 West Olympic Blvd., Los Angeles, California 90064.
XI.
The corporation reserves the right at any time, and from time to
time, to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, and other provisions authorized by the laws of the
State of Delaware at the time in force may be added or inserted, in the manner
now or hereafter prescribed by law; and all rights, preferences and privileges
of whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Certificate of Incorporation in its present
form or as hereafter amended are granted subject to the rights reserved in this
article.
IN WITNESS WHEREOF, the undersigned incorporator hereby
acknowledges that the foregoing Certificate of Incorporation is his act and deed
and that the facts stated therein are true.
Dated: June 5, 2000.
/s/ MICHEL URICH
-----------------------------------------
Michel Urich, Incorporator
APPENDIX IV
BYLAWS
OF
NARA BANCORP, INC.
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the Nara
Bancorp, Inc. (hereinafter called the "CORPORATION") shall be in the State of
Delaware at 9 East Loockerman Street, City of Dover, County of Kent, and the
registered agent shall be National Corporate Research, or such other office or
agent as the Board of Directors of the Corporation (the "BOARD") shall from time
to time select.
SECTION 2. OTHER OFFICES. The Corporation may also have offices
at such other places both within and without the State of Delaware as the Board
of Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. Meetings of the stockholders for
the election of directors or for any other purpose shall be held at such time
and place, either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
SECTION 2. ANNUAL MEETINGS. The Annual Meetings of Stockholders
shall be held on such date and at such time as shall be designated from time to
time by the Board of Directors and stated in the notice of the meeting, at which
meetings the stockholders shall elect by a plurality vote a Board of Directors,
and transact such other business as may properly be brought before the meeting.
Written notice of the Annual Meeting stating the place, date and hour of the
meeting shall be given to each stockholder entitled to vote at such meeting not
less than ten nor more than sixty days before the date of the meeting.
SECTION 3. SPECIAL MEETINGS. Unless otherwise prescribed by law
or by the Certificate of Incorporation, Special Meetings of Stockholders, for
any purpose or purposes, may be called at any time by either the Board of
Directors or by written request of any shareholder(s) owning, in the aggregate,
not less than 10 percent of the stock of the Corporation. Such request shall
state the purpose or purposes of the proposed meeting. Written notice of a
Special Meeting stating the place, date and hour of the meeting and the purpose
or purposes for which the meeting is called shall be given not less than ten nor
more than sixty days before the date of the meeting to each stockholder entitled
to vote at such meeting.
SECTION 4. NOMINATIONS OF DIRECTORS. Nominations for election to
the Board of Directors may be made by the Board of Directors or by any
stockholder of any outstanding class of capital stock of The Corporation
entitled to vote for the election of directors. Nominations,
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other than those made by or on behalf of the existing management of the
Corporation, shall be made in writing and be delivered or mailed to the
president of The Corporation not less than 14 days nor more than 50 days prior
to any meeting of stockholders called for the election of directors; provided,
however, that if less than 21 days' notice of the meeting is given to
stockholders, such nominations shall be mailed or delivered to the president of
The Corporation not later than the close of business on the seventh day
following the day on which the notice of meeting was mailed. Such notification
shall contain the following information to the extent known to the notifying
stockholder:
(a) The name and address of each proposed nominee.
(b) The principal occupation of each proposed nominee.
(c) The total number of shares of capital stock of the Corporation
owned by each proposed nominee.
(d) The name and address of the notifying stockholder.
(e) The number of shares of capital stock of The Corporation owned
by the notifying stockholder.
Nominations not made in accordance herewith may be disregarded by the chairman
of the meeting, and upon his instructions, all votes cast for each such nominee
may be disregarded.
SECTION 5. QUORUM. Except as otherwise provided by law or by the
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If, however, such quorum shall not
be present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, shall have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder entitled to vote at
the meeting.
SECTION 6. VOTING. Unless otherwise required by law, the
Certificate of Incorporation or these Bylaws, any question brought before any
meeting of stockholders shall be decided by the vote of the holders of a
majority of the stock represented and entitled to vote thereat. Each stockholder
represented at a meeting of stockholders shall be entitled to cast one vote for
each share of the capital stock entitled to vote thereat held by such
stockholder. Such votes may be cast in person or by proxy but no proxy shall be
voted on or after three years from its date, unless such proxy provides for a
longer period. The Board of Directors, in its discretion, or the officer of the
Corporation presiding at a meeting of stockholders, in his discretion, may
require that any votes cast at such meeting shall be cast by written ballot.
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SECTION 7. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless
otherwise provided in the Certificate of Incorporation, any action required or
permitted to be taken at any Annual or Special Meeting of Stockholders of the
Corporation, may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
SECTION 8. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer of
the Corporation who has charge of the stock ledger of the Corporation shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder of the Corporation who is
present.
SECTION 9. STOCK LEDGER. The stock ledger of the Corporation
shall be the only evidence as to who are the stockholders entitled to examine
the stock ledger, the list required by Section 8of this ARTICLE II or the books
of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND ELECTION OF DIRECTORS. The Board of
Directors shall consist of not less than five (5) nor more than twenty-five
(25) members, the exact number of which shall initially be fixed by the
Incorporator and thereafter from time to time by the Board of Directors. Except
as provided in Section 2 of this ARTICLE III, directors shall be elected by a
plurality of the votes cast at Annual Meetings of Stockholders, and each
director so elected shall hold office until the next Annual Meeting and until
his successor is duly elected and qualified, or until his earlier resignation or
removal. Any director may resign at any time upon notice to the Corporation.
Directors need not be stockholders.
SECTION 2. VACANCIES. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director, and the directors so chosen shall hold office until
the next annual election and until their successors are duly elected and
qualified, or until their earlier resignation or removal.
SECTION 3. DUTIES AND POWERS. The business of the Corporation
shall be managed by or under the direction of the Board of Directors which may
exercise all such powers
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of the Corporation and do all such lawful acts and things as are not by statute
or by the Certificate of Incorporation or by these Bylaws directed or required
to be exercised or done by the stockholders.
SECTION 4. MEETINGS. The Board of Directors of the Corporation
may hold meetings, both regular and special, either within or without the State
of Delaware. Regular meetings of the Board of Directors may be held without
notice at such time and at such place as may from time to time be determined by
the Board of Directors. Special meetings of the Board of Directors may be called
by the Chairman, if there be one, the President, or any one director. Notice
thereof stating the place, date and hour of the meeting shall be given to each
director either by mail not less than forty-eight (48) hours before the date of
the meeting, by telephone or telegram on twenty-four (24) hours' notice, or on
such shorter notice as the person or persons calling such meeting may deem
necessary or appropriate in the circumstances.
SECTION 5. QUORUM. Except as may be otherwise specifically
provided by law, the Certificate of Incorporation or these Bylaws, at all
meetings of the Board of Directors, a majority of the entire Board of Directors
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors. If a quorum shall not be present at
any meeting of the Board of Directors, the directors present thereat may adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
SECTION 6. ACTIONS OF BOARD. Unless otherwise provided by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 7. MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Unless
otherwise provided by the Certificate of Incorporation or these Bylaws, members
of the Board of Directors of the Corporation, or any committee designated by the
Board of Directors, may participate in a meeting of the Board of Directors or
such committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this Section 7 shall
constitute presence in person at such meeting.
SECTION 8. COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the entire Board of Directors, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of any such committee. In the absence or disqualification
of a member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any absent or disqualified member. Any committee, to the extent
4
allowed by law and provided in the resolution establishing such committee, shall
have and may exercise all the powers and authority of the Board of Directors in
the management of the business and affairs of the Corporation. Each committee
shall keep regular minutes and report to the Board of Directors when required.
SECTION 9. COMPENSATION. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
SECTION 10. INTERESTED DIRECTORS. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose if (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
his or their relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract or
transaction.
ARTICLE IV
OFFICERS
SECTION 1. GENERAL. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a President, a Secretary and a
Treasurer. The Board of Directors, in its discretion, may also choose a Chairman
of the Board of Directors (who must be a director) and one or more Vice
Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any
number of offices may be held by the same person, unless otherwise prohibited by
law, the Certificate of Incorporation or these Bylaws. The officers of the
Corporation need not be stockholders of the Corporation nor, except in the case
of the Chairman of the Board of Directors, need such officers be directors of
the Corporation.
SECTION 2. ELECTION. The Board of Directors at its first meeting
held after each Annual Meeting of Stockholders shall elect the officers of the
Corporation who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors; and all officers of the Corporation shall
5
hold office until their successors are chosen and qualified, or until their
earlier resignation or removal. Any officer elected by the Board of Directors
may be removed at any time by the affirmative vote of a majority of the Board of
Directors. Any vacancy occurring in any office of the Corporation shall be
filled by the Board of Directors. The salaries of all officers of the
Corporation shall be fixed by the Board of Directors.
SECTION 3. VOTING SECURITIES OWNED BY THE CORPORATION. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the President or any Vice President and any
such officer may, in the name of and on behalf of the Corporation, take all such
action as any such officer may deem advisable to vote in person or by proxy at
any meeting of security holders of any corporation in which the Corporation may
own securities and at any such meeting shall possess and may exercise any and
all rights and power incident to the ownership of such securities and which, as
the owner thereof, the Corporation might have exercised and possessed if
present. The Board of Directors may, by resolution, from time to time confer
like powers upon any other person or persons.
SECTION 4. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of
the Board of Directors, if there be one, shall preside at all meetings of the
stockholders and of the Board of Directors. He shall be the Chief Executive
Officer of the Corporation, and except where by law the signature of the
President is required, the Chairman of the Board of Directors shall possess the
same power as the President to sign all contracts, certificates and other
instruments of the Corporation which may be authorized by the Board of
Directors. During the absence or disability of the President, the Chairman of
the Board of Directors shall exercise all the powers and discharge all the
duties of the President. The Chairman of the Board of Directors shall also
perform such other duties and may exercise such other powers as from time to
time may be assigned to him by these Bylaws or by the Board of Directors.
SECTION 5. PRESIDENT. The President shall, subject to the
control of the Board of Directors and, if there be one, the Chairman of the
Board of Directors, have general supervision of the business of the Corporation
and shall see that all orders and resolutions of the Board of Directors are
carried into effect. He shall execute all bonds, mortgages, contracts and other
instruments of the Corporation requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except that the other officers of the Corporation may sign and
execute documents when so authorized by these Bylaws, the Board of Directors or
the President. In the absence or disability of the Chairman of the Board of
Directors, or if there be none, the President shall preside at all meetings of
the stockholders and the Board of Directors. If there be no Chairman of the
Board of Directors, the President shall be the Chief Executive Officer of the
Corporation. The President shall also perform such other duties and may exercise
such other powers as from time to time may be assigned to him by these Bylaws or
by the Board of Directors.
SECTION 6. VICE PRESIDENT(S). At the request of the President or
in his absence or in the event of his inability or refusal to act (and if there
be no Chairman of the Board of Directors), the Vice President or the Vice
Presidents if there is more than one (in the order designated by the Board of
Directors) shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. Each
6
Vice President shall perform such other duties and have such other powers as the
Board of Directors from time to time may prescribe. If there be no Chairman of
the Board of Directors and no Vice President, the Board of Directors shall
designate the officer of the Corporation who, in the absence of the President or
in the event of the inability or refusal of the President to act, shall perform
the duties of the President, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the President.
SECTION 7. SECRETARY. The Secretary shall attend all meetings of
the Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all meetings
of the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
President, under whose supervision he shall be. If the Secretary shall be unable
or shall refuse to cause to be given notice of all meetings of the stockholders
and special meetings of the Board of Directors, and if there be no Assistant
Secretary, then either the Board of Directors or the President may choose
another officer to cause such notice to be given. The Secretary shall have
custody of the seal of the Corporation and the Secretary or any Assistant
Secretary, if there be one, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the signature
of the Secretary or by the signature of any such Assistant Secretary. The Board
of Directors may give general authority to any other officer to affix the seal
of the Corporation and to attest the affixing by his signature. The Secretary
shall see that all books, reports, statements, certificates and other documents
and records required by law to be kept or filed are properly kept or filed, as
the case may be.
SECTION 8. TREASURER. The Treasurer shall have the custody of
the corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Treasurer and of the financial condition of the
Corporation. if required by the Board of Directors, the Treasurer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
SECTION 9. ASSISTANT SECRETARIES. Except as may be otherwise
provided in these Bylaws, Assistant Secretaries, if there be any, shall perform
such duties and have such powers as from time to time may be assigned to them by
the Board of Directors, the President, any Vice President, if there be one, or
the Secretary, and in the absence of the Secretary or in the event of his
disability or refusal to act, shall perform the duties of the Secretary, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the Secretary.
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SECTION 10. ASSISTANT TREASURERS. Assistant Treasurers, if there
be any, shall perform such duties and have such powers as from time to time may
be assigned to them by the Board of Directors, the President, any Vice
President, if there be one, or the Treasurer, and in the absence of the
Treasurer or in the event of his disability or refusal to act, shall perform the
duties of the Treasurer, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the Treasurer. If required by the Board of
Directors, an Assistant Treasurer shall give the Corporation a bond in such sum
and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of his office and for the
restoration to the Corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
Corporation.
SECTION 11. OTHER OFFICERS. Such other officers as the Board of
Directors may choose shall perform such duties and have such powers as from time
to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
ARTICLE V
STOCK
SECTION 1. FORM OF CERTIFICATES. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board of Directors, the President or a
Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by him in the Corporation. Pursuant to the Plan of Reorganization
and Agreement of Merger, between the Corporation, Nara Bank, N.A. and Nara
Interim Bank, N.A, stock certificates of Nara Bank, N.A. shall also be valid
stock certificates of the Corporation.
SECTION 2. SIGNATURES. Where a certificate is countersigned by
(i) a transfer agent other than the Corporation or its employee, or (ii) a
registrar other than the Corporation or its employee, any other signature on the
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
SECTION 3. LOST CERTIFICATES. The Board of Directors may direct
a new certificate to be issued in place of any certificate theretofore issued by
the Corporation alleged to have been lost, stolen or destroyed, upon the making
of an affidavit of that fact by the person claiming the certificate of stock to
be lost, stolen or destroyed. When authorizing such issue of a new certificate,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to advertise the same in such manner
as the Board of Directors shall require and/or to give the Corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
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SECTION 4. TRANSFERS. Stock of the Corporation shall be
transferable in the manner prescribed by law and in these Bylaws. Transfers of
stock shall be made on the books of the Corporation only by the person named in
the certificate or by his attorney lawfully constituted in writing and upon the
surrender of the certificate therefor, which shall be canceled before a new
certificate shall be issued.
SECTION 5. RECORD DATE. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to express consent to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which shall not be more than sixty days nor less than
ten days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 6. BENEFICIAL OWNERS. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by law.
ARTICLE VI
NOTICES
SECTION 1. NOTICES. Whenever written notice is required by law,
the Certificate of Incorporation or these Bylaws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at his address
as it appears on the records of the Corporation, with postage thereon prepaid,
and such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Written notice may also be given personally
or by telegram, telex or cable.
SECTION 2. WAIVERS OF NOTICE. Whenever any notice is required by
law, the Certificate of Incorporation or these Bylaws, to be given to any
director, member of a committee or stockholder, a waiver thereof in writing,
signed, by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, and may be paid in cash, in property, or in shares
9
of the capital stock. Before payment of any dividend, there may be set aside out
of any funds of the Corporation available for dividends such sum or sums as the
Board of Directors from time to time, in its absolute discretion, deems proper
as a reserve or reserves to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
SECTION 2. DISBURSEMENTS. All checks or demands for money and
notes of the Corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time to time
designate.
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation shall
be fixed by resolution of the Board of Directors.
SECTION 4. CORPORATE SEAL. The corporate seal shall have
inscribed thereon the name of the Corporation, the year of its organization and
the word "Delaware". The seal may be used by causing it or a facsimile thereof
to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
SECTION 1. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS
OTHER THAN THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of
this ARTICLE VIII, the Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
SECTION 2. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS
BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this ARTICLE
VIII, the Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred
10
by him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation; except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the Corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
SECTION 3. AUTHORIZATION OF INDEMNIFICATION. Any indemnification
under this ARTICLE VIII (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Section 1 or Section 2 of this ARTICLE VIII, as the case may be. Such
determination shall be made (i) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (iii) by the stockholders. To the extent, however, that a
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding described
above, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith, without the necessity of authorization
in the specific case.
SECTION 4. GOOD FAITH DEFINED. For purposes of any determination
under Section 3 of this ARTICLE VIII, a person shall be deemed to have acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation, or, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe his conduct was unlawful,
if his action is based on the records or books of account of the Corporation or
another enterprise, or on information supplied to him by the officers of the
Corporation or another enterprise in the course of their duties, or on the
advice of legal counsel for the Corporation or another enterprise or on
information or records given or reports made to the Corporation or another
enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Corporation or another
enterprise. The term if another enterprise" as used in this Section 4 shall mean
any other corporation or any partnership, joint venture, trust, employee benefit
plan or other enterprise of which such person is or was serving at the request
of the Corporation as a director, officer, employee or agent. The provisions of
this Section 4 shall not be deemed to be exclusive or to limit in any way the
circumstances in which a person may be deemed to have met the applicable
standard of conduct set forth in Section 1 or Section 2 of this ARTICLE VIII, as
the case may be.
SECTION 5. INDEMNIFICATION BY A COURT. Notwithstanding any
contrary determination in the specific case under Section 3 of this ARTICLE
VIII, and notwithstanding the absence of any determination thereunder, any
director, officer, employee or agent may apply to any court of competent
jurisdiction in the State of Delaware for indemnification to the extent
otherwise permissible under Section 1 and Section 2 of this ARTICLE VIII. The
basis of such indemnification by a court shall be a determination by such court
that indemnification of the
11
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standards of conduct set forth in Section 1 and Section 2
of this ARTICLE VIII, as the case may be. Neither a contrary determination in
the specific case under Section 3 of this ARTICLE VIII nor the absence of any
determination thereunder shall be a defense to such application or create a
presumption that the director, officer, employee or agent seeking
indemnification has not met any applicable standard of conduct. Notice of any
application for indemnification pursuant to this Section 5 shall be given to the
Corporation promptly upon the filing of such application. If successful, in
whole or in part, the director, officer, employee or agent seeking
indemnification shall also be entitled to be paid the expense of prosecuting
such application.
SECTION 6. EXPENSES PAYABLE IN ADVANCE. Expenses incurred in
defending or investigating a threatened or pending action, suit or proceeding
may be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of
such director, officer, employee or agent to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
Corporation as authorized in this ARTICLE VIII.
SECTION 7. NONEXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES. The indemnification and advancement of expenses provided by or granted
pursuant to this ARTICLE VIII shall not be deemed exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled under any by-law, agreement, contract, vote of stockholders or
disinterested directors or pursuant to the direction (howsoever embodied) of any
court of competent jurisdiction or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, it
being the policy of the Corporation that indemnification of the persons
specified in Section 1 and Section 2 of this ARTICLE VIII shall be made to the
fullest extent permitted by law. The provisions of this ARTICLE VIII shall not
be deemed to preclude the indemnification of any person who is not specified in
Section 1 and Section 2 of this ARTICLE VIII but whom the Corporation has the
power or obligation to indemnify under the provisions of the General Corporation
Law of the State of Delaware, or otherwise.
SECTION 8. INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation would have the
power or the obligation to indemnify him against such liability under the
provisions of this ARTICLE VIII.
SECTION 9. CERTAIN DEFINITIONS. For purposes of this ARTICLE
VIII, references to "the Corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was a director or officer of the Corporation serving at the request of such
constituent corporation as a director,
12
officer, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, shall stand in the same
position under the provisions of this ARTICLE VIII with respect to the resulting
or surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued. For purposes of this
ARTICLE VIII, references to "fines" shall include any excise taxes assessed on a
person with respect to an employee benefit plan; and references to "serving at
the request of the Corporation" shall include any service as a director,
officer, employee or agent of the Corporation which imposes duties on, or
involves services by, such director, officer, employee or agent with respect to
an employee benefit plan, its participants or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
Corporation" as referred to in this ARTICLE VIII.
SECTION 10. SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES. The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
ARTICLE IX
AMENDMENTS
SECTION 1. These Bylaws may be altered, amended or repealed, in
whole or in part, or new Bylaws may be adopted by the stockholders or by the
Board of Directors, provided, however, that notice of such alteration,
amendment, repeal or adoption of new Bylaws be contained in the notice of such
meeting of stockholders or Board of Directors as the case may be. All such
amendments must be approved by either the holders of a majority of the
outstanding capital stock entitled to vote thereon or by a majority of the
entire Board of Directors then in office.
SECTION 2. ENTIRE BOARD OF DIRECTORS. As used in this ARTICLE IX
and in these Bylaws generally, the term "entire Board of Directors" means the
total number of directors which the Corporation would have if there were no
vacancies.
13
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting Secretary of NARA
BANCORP, INC., a Delaware corporation; and
2. That the foregoing bylaws, constitute the bylaws of said
corporation as duly adopted by action of the Incorporator taken on June 6, 2000
and ratified by the Board of Directors of the Corporation on June 9, 2000.
IN WITNESS WHEREOF, I have hereunto subscribed my name and
affixed the seal of said corporation this 9th day of June, 2000.
Bon T. Goo, Secretary
14
APPENDIX V
STOCKHOLDERS AGREEMENT
THIS AGREEMENT is entered into this 10th day of November, 2000 by and among
Benjamin B. Hong, Thomas Chung, Chang Hee Kim, Brian Woo, Hyon Park, and Yong
Hwan Kim ("Shareholders" and each of them a "Shareholder"), and Nara Bancorp,
Inc. ("Bancorp"), a Delaware corporation with its principal executive office in
Los Angeles, California.
A. WHEREAS, the Board of Nara Bank has approved a Plan of Reorganization
and Merger Agreement pursuant to which: (i) Bancorp is first organized in
Delaware by directors of the Bank acting as individual stockholders of the Bank;
(ii) an interim national banking association ("Interim Bank") is organized as a
wholly owned subsidiary of Bancorp; and (iii) Bank is merged (the "Merger") with
and into the Interim Bank with the Interim Bank as the surviving association to
be renamed Nara Bank (the "Surviving National Bank"), and with the result that,
by operation of law, Nara Bank becomes a wholly owned subsidiary of Bancorp.
B. WHEREAS, the Certificate of Incorporation of Bancorp currently
authorizes the issuance of up to 10,000,000 shares of its $0.001 par value
Common Stock ("Bancorp Common Stock");
C. WHEREAS, in order to be initially capitalized and for the purpose of
facilitating the transactions required to organize Bancorp as the bank holding
company for Nara Bank, N.A. ("Bank"), Bancorp desires to sell and issue 600
shares of Bancorp Common Stock at the purchase price of $10.00 per share with
each Shareholder purchasing 100 shares of such stock;
D. WHEREAS, each Shareholder desires to purchase 100 shares of Bancorp
Common Stock for the purchase price of $10.00 per share pursuant to the terms
and conditions herein set forth;
IT IS MUTUALLY AGREED by and among the parties hereto as follows:
1. THE INITIAL PURCHASES. Bancorp agrees to sell and each Shareholder
agrees to purchase 100 shares of Bancorp Common Stock at the price of $10.00 per
share for an aggregate purchase price of $1,000.
2. TRANSFER OF SHARES. Each Shareholder agrees not to sell, assign,
transfer, encumber, hypothecate, or make any other disposition of any of the
shares of Bancorp Common Stock to be purchased except with the prior written
consent of Bancorp and except in accordance with the terms of this Stockholders
Agreement. This Stockholders Agreement shall be binding upon and shall operate
for the benefit of Bancorp and the Shareholders and the respective executors or
administrators and any transferees or assignees of the Shareholder, whether such
transfers or assignments are in accordance with or in violation of the
provisions of the Stockholders Agreement.
1
3. THE PURCHASE BY BANCORP. Upon consummation of the Merger, pursuant to
which Bancorp will issue shares of Bancorp Common Stock to the former
shareholders of Bank (the "Merger"), Bancorp shall be obligated to repurchase
for cash and each Shareholder shall be obligated to resell to Bancorp the
above-mentioned 100 shares of Bancorp Common Stock at the repurchase price of
$10.00 per share, for a total repurchase price of $1,000. The repurchase and
replacement therefor shall occur simultaneously with consummation of the Merger,
at which time Shareholders' share certificates shall be returned and canceled.
4. TERMINATION. This Stockholders Agreement shall terminate upon
occurrence of any of the following events:
(a) The bankruptcy, receivership, or dissolution of Bancorp;
(b) Mutual agreement of Bancorp and the Shareholders; or,
(c) The failure of the consummation of the Merger for any reason
whatsoever.
5. LEGEND. Upon execution of this Stockholders Agreement, the respective
certificates representing the number of shares of Bancorp Common Stock to be
issued pursuant hereto shall be endorsed as follows:
"This certificate is transferable only upon compliance with the
provisions of a Stockholders Agreement dated November 10, 2000."
6. VOTING REQUIREMENT. Each Shareholder further agrees to vote all
shares of Bancorp Common Stock at meetings of the shareholders or by written
consent held by him in favor of the Merger, in favor of the adoption of
replacement stock option plans and employee stock or benefit plans for Bancorp,
including the 1996 Employee Stock Ownership Plan and the 2000 Long Term
Incentive Plan, and in favor of any and all other actions recommended by the
Board of Directors of Bancorp to further the transactions contemplated to
organize Bancorp as the holding company for the Bank.
7. GOVERNING LAW. This Stockholders Agreement shall be construed and
governed by the laws of California.
8. ENTIRE AGREEMENT. This Stockholders Agreement constitutes the sole
and only agreement of the parties hereto respecting the sale and purchase of the
shares of Bancorp as well as the resale and repurchase of the shares of Bancorp
Common Stock and correctly sets forth the rights, duties, and obligations of
each party to the other in relation thereto as of this date. Any prior
agreements, promises, negotiations or representations concerning the subject
matter of this Stockholders Agreement not expressly set forth in this
Stockholders Agreement are of no force or effect.
9. COUNTERPARTS. This Stockholders Agreement may be executed in one or
more counterparts, each of which shall be deemed to constitute an original. This
Stockholders Agreement shall become effective when one counterpart has been
signed by each party hereto.
2
IN WITNESS WHEREOF, the parties hereto have executed this Stockholders
Agreement in Los Angeles, California on the date first above written.
NARA BANCORP, INC.
By /s/ Thomas Chung By /s/ Bon T. Goo
------------------------------ ----------------------------
Chairman of the Board Secretary
By Shareholders:
/s/ Benjamin B. Hong /s/ Thomas Chung
-------------------------------- -------------------------------
Benjamin B. Hong Thomas Chung
/s/ Chang Hee Kim /s/ Brian Woo
-------------------------------- -------------------------------
Chang Hee Kim Brian Woo
/s/ Hyon Park /s/ Yong Hwan Kim
-------------------------------- -------------------------------
Hyon Park Yong Hwan Kim
3
APPENDIX VI
AS FILED WITH THE OFFICE OF THE COMPTROLLER OF THE CURRENCY ON MARCH 30, 2000.
================================================================================
OFFICE OF THE COMPTROLLER OF THE CURRENCY
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
NARA BANK, NATIONAL ASSOCIATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
[Download Table]
UNITED STATES 95-4170121
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
3701 WILSHIRE BOULEVARD
SUITE 220
LOS ANGELES, CALIFORNIA 90010
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (213) 639-1700
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $3.00 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Common Stock held by non-affiliates of the
Registrant based upon the closing sale price of the Common Stock on March 15,
2000, as reported on the Nasdaq National Market, was approximately $32,136,931.
Shares of Common Stock held by each executive officer and director and each
person owning more than 5% of the outstanding Common Stock of the Registrant
have been excluded in that such persons may be deemed to be affiliates of the
Registrant. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
Number of shares outstanding of the Registrant's Common Stock, as of March 15,
2000: 4,403,753
1
PART I
ITEM 1 BUSINESS OF THE BANK
GENERAL
Nara Bank opened for business on June 16, 1989 under the name "United
Citizens National Bank" as a national banking association. The institution's
name was changed to "Nara Bank, National Association" (the "Bank") on January
27, 1994. Its headquarters office is located at 3701 Wilshire Boulevard, Suite
220, Los Angeles, California 90010. Its telephone number is (213) 639-1700. The
Olympic office, which was opened at the inception of the Bank on June 16, 1989,
is still located at 2727 West Olympic Boulevard, Los Angeles, California. In May
1996, the Bank opened a full service branch in Los Angeles' downtown garment
district at 1122 Wall Street, Los Angeles, California. The Torrance and San
Fernando Valley offices were opened in June and November of 1997, respectively.
The Torrance office, a small-scale branch inside a Korean supermarket (a
"mini-market branch"), is located at 3030 West Sepulveda Boulevard, Torrance,
California, and the Valley Office, also a mini-market branch, is located at
17639 Sherman Way, Unit C, Van Nuys, California. In December 1997, the Bank
opened a full branch in the Silicon Valley area, located at 1102 East El Camino
Real, Sunnyvale, California. In April 1998, the Bank opened a limited service
loan production office in Seattle, located at 1010 S. 336th Street, Suite 203,
Federal Way, Seattle, Washington. Two additional mini-market branches were
opened during 1998. The Glendale mini-market branch was opened in June 1998 at
831 N. Pacific Avenue, Glendale, California and the Buena Park mini-market
branch was opened in September 1998, at 5301 Beach Boulevard, Buena Park,
California. In September 1998, the headquarters was relocated to its present
address. In October 1998, the Bank purchased the Flushing branch of Korea
Exchange Bank, located at 136-40 39th Avenue, Flushing, New York. In August 999,
Bank opened a limited service loan production office in Chicago, located at 5901
N. Cicero Ave., Suite 508, Chicago, Illinois. The Bank has no subsidiaries. The
FDIC insures the Bank's deposits up to the maximum legal limits and the Bank is
a member of the Federal Reserve System.
On February 25, 2000, the Bank acquired Korea First Bank of New York for
a purchase price of approximately $8.7 million and thereby took over its three
branches located at 29 West 30th Street, New York, New York; 78-14 Roosevelt
Avenue, Jackson Heights, New York and 138-02 Northern Boulevard, Flushing, New
York.
BANKING SERVICES
The Bank offers a full range of commercial banking and consumer
financial services for its customers: individuals and small- to medium-sized
businesses in our market areas. The Bank accepts deposits and originates a
variety of loans including commercial loans, trade finance, Small Business
Administration (SBA) loans, automobile and various consumer loans. The Bank also
offers equipment lease financing and postdated check discount and factoring. To
better meet its customers' needs, the Bank's mini-market branches generally
offer extended hours from 10 a.m. to 8 p.m. Each of the Bank's branches, except
for the Wilshire office, operates 24-hour automated teller machines. The Bank
provides courier services to qualifying clients and has personal banking
officers for the Bank's key customers to better support their banking needs. The
Bank honors merchant drafts for both VISA and MasterCard and provides debit
cards services to its customers. In addition, the Bank offers travelers' checks,
safe deposit boxes, notary public and other customary bank services. The Bank
also offers 24-hour banking by telephone and recently introduced Internet
banking through its website, www.narabankna.com.
A significant amount of the Bank's operating income and net income
depends on the difference between the interest revenue received from
interest-earning assets and the interest expense paid on interest-bearing
liabilities. However, interest rates are highly sensitive to many factors that
are beyond the Bank's control, such as general economic conditions and the
policies of various governmental and regulatory authorities, in particular those
of the Federal Reserve Board. Although the business of the Bank may vary with
local and national economic conditions, such variations do not appear to be
seasonal in nature.
2
LOAN PORTFOLIO
The Bank's net loans totaled approximately $235 million as of December
31, 1999, accounting for 74.8% of the Bank's total interest-earning assets of
$314 million. Total loans consist of: commercial loans of approximately $109
million; real estate and construction loans of approximately $95 million;
consumer loans of approximately $35 million; less deferred loan fees of $86,000
and allowance for loan losses of $3.6 million at December 31, 1999. These loans
are carried at face amount, less payments collected, net of deferred loan
originating fee, and the allowance for loan losses. Interest on all loans is
accrued daily on a simple interest basis. Loans are placed on a non-accrual
basis when principal and interest on a loan is past due 90 days or more, unless
a loan is both well secured and in process of collection. Once a loan is placed
on non-accrual status, accrual of interest is discontinued and previously
accrued interest is reversed.
The rates of interest charged on variable rate loans are set at
specified increments in relation to the Bank's prime lending rate and,
accordingly, vary as the Bank's prime lending rate varies. A majority of the
Bank's loans (approximately 74.0% of the Bank's loans at December 31, 1999) are
variable rate loans. While most of these loans are secured loans, the Bank is
permitted with certain exceptions, under applicable law, to make unsecured loans
to individual borrowers in aggregate amounts of up to 15% of the sum of the
Bank's total capital and the allowance for loan losses (as defined for
regulatory purposes). As of December 31, 1999, these lending limits for the Bank
were approximately $ 4.6 million for unsecured loans. For the purpose of lending
limits, a secured loan is defined as a loan secured by readily marketable
collateral having a current market value of at least 100% of the amount of the
loan or extension of credit at all times. In addition to unsecured loans, the
Bank is permitted to make loans secured by such collaterals in an additional
amount up to 10% of the Bank's total capital and the allowance for loan losses.
The following table shows the composition of the Bank's loan portfolio
by type of loan on the dates indicated (dollars in thousands):
[Enlarge/Download Table]
DECEMBER 31,
-------------------------------------------------------------------------
1999* 1998* 1997
--------------------- ----------------------- -----------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
--------- -------- --------- -------- --------- -------
Loan Portfolio Composition:
Commercial Loans ....................... $ 108,687 45.4% $ 84,166 50.2% $ 68,199 62.0%
Real Estate and Construction Loans ..... 95,115 39.8% 52,823 31.5% 21,136 19.2%
Consumer Loans ......................... 35,295 14.8% 30,651 18.3% 20,635 18.8%
Total Loans Outstanding ................ 239,097 100.0% 167,640 100.0% 109,970 100.0%
Deferred Loan Fees, Net of Costs ....... (86) 32 45
Less: Allowance for Loan Losses ........ (3,644) (2,961) (2,138)
Net Loans Receivable ................... $ 235,367 $ 164,711 $ 107,877
* Includes loans held for sale in commercial loans; $168,250 in 1999 and
$415,138 in 1998.
COMMERCIAL LOANS
Commercial loans are made primarily for the purposes of providing
working capital or financing the purchase of inventory and equipment and for
other business purposes. Short term business loans (due within one year),
referred to as Business Line of Credits, are generally used to finance current
transactions and typically provide for periodic interest payments, with
principal being payable at maturity. Term loans (1 to 25 years) normally provide
for monthly payments of both principal and interest. The credit-worthiness of
the borrower is reviewed on a periodic basis, and most loans are collateralized
by inventory, equipment and/or real estate.
REAL ESTATE LOANS
The Bank's real estate loans consist primarily of loans secured by deeds
of trust on commercial property and are normally written for a short duration.
It is the Bank's policy to restrict real estate loans to 80% of the Bank's
appraised value of the property. The Bank offers both fixed and floating rate
loans. While maturities on such loans are generally restricted to five years (on
an amortization ranging from 10 to 15 years with a balloon payment due at
maturity), the Bank has occasionally made longer term (up to 25 years) fully
amortizing loans.
3
SMALL BUSINESS ADMINISTRATION LOANS
The Bank's Small Business Administration loans are typically made for
the purpose of providing working capital, financing the purchase of equipment or
inventory, financing the purchase of a business, debt refinancing, or financing
the purchase or construction of owner occupied commercial property. The SBA
loans are typically term loans with maturities ranging from 7 to 25 years. These
loans normally provide for floating interest rates, with monthly payments of
both principal and interest.
The Bank's SBA lending represents an important portion of its loan
portfolio because of its ability to sell the guaranteed portion in the secondary
market at a premium, while earning servicing fees on the sold portion over the
remaining life of the loan. Thus, in addition to the yield earned on the portion
of the SBA loans retained by the Bank, the Bank recognizes gains on the sale and
revenue for the loan services provided for the loans sold into the secondary
market.
The Bank established a separate SBA loan department to expedite its
services related to SBA loans. The SBA loan department is staffed by experienced
loan officers who provide assistance to qualified individuals and existing
businesses. The Bank attained SBA Preferred Lenders status in the Los Angeles
and Santa Ana districts on January 16, 1997. SBA Preferred Lender status is the
highest designation awarded by the SBA and generally facilitates the marketing
and approval process for new SBA loans. On February 24, 1999, the Bank attained
Preferred Lender status in the New York, Chicago, San Francisco, Seattle, and
Spokane districts.
CONSUMER LOANS
Most consumer loans consist mostly of automobile loans. Nara Bank began
originating automobile loans in early 1995. The marketing efforts have been
based primarily on referrals from automobile dealers. The Bank also offers
fixed-rate loans to buyers of new and previously owned automobiles, who are not
qualified for automobile dealers most preferential loan rates. During 1999,
these loans increased to $25.9 million from $24.7 million at December 31, 1998
and $16.7 million at December 31, 1997.
LINES OF CREDIT
The Bank extends lines of credit to business customers usually on an
annual review basis. The Bank's undisbursed commercial loan commitments at
December 31, 1999 and 1998 were $56 million and $48 million respectively. The
following table shows the Bank's loan commitments and letters of credit
outstanding at the dates indicated (dollars in thousands):
[Download Table]
DECEMBER 31
------------------------------------------
1999 1998 1997
----------- ----------- -----------
Loan commitments...................... $56,278 $47,707 $31,152
Standby letters of credit............. 2,851 2,948 2,787
Commercial letters of credit.......... 17,554 10,689 8,921
CONCENTRATIONS
Loan concentrations are considered to exist when there are significant
amounts of loans to a multiple number of borrowers engaged in similar activities
which would cause them to be similarly impacted by economic or other conditions.
The following table describes the industry concentration in the Bank's loan
portfolio which exceed 10% of the Bank's total loans as of the dates indicated
(dollars in thousands):
[Enlarge/Download Table]
AT DECEMBER 31
-------------------------------------------------------------------------------------
1999 1998 1997
------------------------ -------------------------- --------------------------
AMOUNT % OF PORTFOLIO AMOUNT % OF PORTFOLIO AMOUNT % OF PORTFOLIO
------ -------------- ------- -------------- ------- --------------
Manufacturing...... $30,072 12.8% $31,383 19.1% $25,608 23.7%
Wholesale Trade.... 71,283 30.3% 46,517 28.2% 34,648 32.1%
Retail Trade....... 35,878 15.2% 30,345 18.4% 19,276 17.7%
Services........... 25,702 10.9% 23,745 14.4% 13,208 12.2%
------- -------- -------
Total....... $162,935 $131,990 $92,740
4
OTHER REAL ESTATE OWNED ("OREO")
The Bank owned other real estate, taken through foreclosure, in the
aggregate amount of approximately $57,000 and approximately $10,000 at December
31, 1999 and 1998, repectively. The Bank reserved $13,000 at December 31, 1999
as a valuation allowance, while there was no valuation allowance at December 31,
1998. The Bank incurred expenses of $16,628 and $10,612 and earned income of
$906 and $5,400 from these properties in 1999 and 1998, respectively. The
following table summarizes the Bank's OREO at the dates indicated (dollars in
thousands):
[Download Table]
DECEMBER 31,
-------------------------------------------
1999 1998 1997
---- ---- ----
Other real estate owned............. $57 $10 $10
Valuation allowance................. (16) 0 (10)
Net OREO....................... $39 $10 0
INVESTMENT SECURITY PORTFOLIO
Nara Bank's present policy permits investment in various types of
securities, certificates of deposits and federal funds sold in compliance with
various restrictions in the policy. The Bank may invest in any bond rates "A" or
higher. Nara Bank's policy states that the Bank's Investment Officer (or Chief
Financial Officer in the absence of Investment Officer) may make most
investments pursuant to the Investment Policy only with approval from the
President of the Bank.
Nara Bank classifies its securities as held-to-maturity or
available-for-sale. The securities, which Nara Bank has the ability and intent
to hold to maturity are classified as held-to-maturity securities. All other
securities are classified as available-for-sale. There were no trading
securities at December 31, 1999. As of December 31, 1999, held-to-maturity
securities totaled $17.3 million, compared to $17.0 million at December 31,1998
and $14.6 million at December 31, 1997, and the available-for-sale securities
totaled $16.0 million at December 31, 1999. There were no available-for-sale
securities at December 31, 1998 and $3.9 million at December 31, 1997. Of the
securities, securities with amortized cost of about $3.5 million were pledged to
secure public deposits and for other purposes as required or permitted by law at
December 31, 1999. The securities held by the Bank are treasury notes,
government sponsored agency bonds, and corporate bonds. This investment
portfolio composition reflects the Bank's investment strategy.
The main objectives of the Bank's investment strategy are to support a
sufficient level of liquidity while providing means to plan and maintain the
Bank's interest rate position, and to generate an adequate level of interest
income without taking undue risks. The Bank has invested in mid-term notes of
Korea-based companies in December 1997. Beginning of 1998, due to the financial
crisis in much of the Asia Pacific region, the market value of those corporate
bonds decreased below their amortized cost. Based on financial analysis of the
bond rating agencies, management believes that the bond-issuing companies have
the financial capabilities to honor the obligations under the original contracts
and that the decline in market value would be other than temporary. The Bank has
provided a $212,515 reserve for potential credit risk for these bonds. During
1999, as permitted with adoption of SFAS No. 133, the Banks reclassified those
bonds with a book value of $6.3 million and an estimated fair value of $5.9
million at December 31, 1998 from the held-to-maturity to the available-for-sale
portfolio. The bank sold four of these securities with a book value of $4.6
million for $4.8 million.
The following table summarizes the maturity of securities and their
pertinent weighted average yield ratios at the dates and for the periods
indicated (dollars in thousands):
5
[Enlarge/Download Table]
AT OR FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------
1999 1998 1997
----------------------------------- ----------------------------------- ----------
WEIGHTED WEIGHTED
TYPE AND MATURITY AMORTIZED MARKET AVERAGE AMORTIZED MARKET AVERAGE AMORTIZED
GROUPING COST VALUE YIELD COST VALUE YIELD COST
-------- -------- ----- -------- -------- ----- --------
Held to maturity:
U.S. Government .................. $ 14,658 $ 13,820 6.75% $ 8,311 $ 8,312 5.37% $ 6,385
Due within one year ............. -- -- -- 501 505 5.74% 501
One to five years ............... 8,000 7,804 6.14% 3,003 2,987 5.43% 501
Five to ten years ............... 1,000 977 6.75% -- -- -- 0
After ten years ................. 5,658 5,139 7.71% 4,808 4,820 7.52% 5,383
U.S. Corporate Notes ............. 2,627 2,321 7.17% 2,579 2,559 7.16% 2,004
Korean Corporate Notes ........... 6,303 5,871 8.33% 6,222
Allowance for Investment
Valuation ....................... -- -- -- (213) -- -- --
Available for sale:
U.S. Government .................. 11,051 10,902 6.88% -- -- -- 3,939
Due within one year ............. 5,555 5,531 6.55% -- -- -- 1,299
One to five years ............... 4,996 4,888 7.14% -- -- -- --
Five to ten years ............... 500 483 8.0% -- -- -- 2,000
After ten years ................. 640
U.S. Corporate Notes ............. 3,486 3,416 7.14% -- -- -- --
Korean Corporate Notes ........... 1,701 1,729 8.68% -- -- -- --
Total Investment
Portfolio ......................... $ 33,523 $ 32,188 6.97% $ 16,979 $ 16,742 7.37% $ 18,550
DEPOSITS
The Bank's primary source of funds are FDIC-insured deposits. The Bank
tries to match its interest-bearing liabilities with its interest-earning
assets. The Bank's deposits consist of demand deposits, savings deposits, money
market, super-NOW, and time deposits with various maturities. The Bank covers
all volatile funds with liquid assets as a method to ensure adequate liquidity.
Thus, the Bank analyzes its deposits' maturity and interest rates to monitor and
control the cost of funds and review the stability of its supply of funds.
When the Bank has more funds than the amount it requires for its reserve
requirements or short-term liquidity needs, it sells federal funds to other
financial institutions. Conversely, when the Bank has less funds than required,
the Bank is allowed to borrow funds from both its corresponding banks and the
Federal Reserve Bank (FRB). The maximum amount which the Bank is currently
authorized to borrow from its correspondent banks is $5,000,000 on overnight
basis. The maximum amount which the Bank may borrow from the FRB discount window
is 90% of the security value pledged with the FRB, which is in amount of
$10,000,000 at December 31, 1999.
EMPLOYEES
As of December 31, 1999, the Bank had 180 full-time equivalent
employees. We also had ___ part-time employees. The Bank's employees are not
represented by a union or covered by a collective bargaining agreement. The Bank
has entered into a written employment agreement with Benjamin B. Hong, its
President and Chief Executive Officer. The Bank does not have any other written
contract with its other employees. Management believes that its relations with
its employees are good.
COMPETITION
The banking and financial services industry in the Bank's primary
markets, California and New York, is highly competitive. The increasingly
competitive environment is primarily a result of changes in regulation, changes
in technology and product delivery systems, and the accelerating pace of
consolidation among financial services providers. The Bank competes for loans,
deposits, and customers with other commercial banks, savings and loan
associations, securities and brokerage companies, mortgage companies, insurance
companies, finance companies, money market funds, credit unions, and other
nonbank financial service providers. Many of these competitors are much larger
in total assets and capitalization, have greater access to capital markets and
offer a broader range of financial services than the Bank. In addition, recent
federal legislation may have the effect of further increasing the pace of
consolidation within the financial services industry. See "Item 1. Business
Supervision and Regulation - Financial Services Modernization Legislation."
6
In order to compete with the other financial services providers, the
Bank principally relies upon local promotional activities, personal
relationships established by officers, directors, and employees with its
customers, and specialized services tailored to meet needs of the communities
served. In those instances where the Bank is unable to accommodate a customer's
needs, the Bank may arrange for those services to be provided by its
correspondents. At December 31, 1999, the Bank had 11 offices, including 4
mini-branches and 2 Loan Production Offices, located in the following areas: Los
Angeles, Orange County and Silicon Valley, California; Seattle, Washington;
Chicago, Illinois; and the greater New York City metropolitan area.
SUPERVISION AND REGULATION
GENERAL
Banks are extensively regulated under both federal and state law. This
regulation is intended primarily for the protection of depositors and the
deposit insurance fund and not for the benefit of stockholders of the Bank. Set
forth below is a summary description of the material laws and regulations which
relate to the operations of the Bank. The description is qualified in its
entirety by reference to the applicable laws and regulations.
THE BANK
The Bank, as a national banking association, is subject to primary
supervision, examination, and regulation by the Office of the Comptroller of the
Currency (the "Comptroller"). To a lesser extent, the Bank is also subject to
regulations of the Federal Deposit Insurance Corporation ("FDIC"), which
provides the Bank with insurance of accounts, and the Federal Reserve Board. If,
as a result of an examination of the Bank, the Comptroller should determine that
the financial condition, capital resources, asset quality, earnings prospects,
management, liquidity or other aspects of the Bank's operations are
unsatisfactory or that the Bank or its management is violating or has violated
any law or regulation, various remedies are available to the Comptroller. Such
remedies include the power to enjoin "unsafe or unsound practices," to require
affirmative action to correct any conditions resulting from any violation or
practice, to issue an administrative order that can be judicially enforced, to
direct an increase in capital, to restrict the growth of the Bank, to assess
civil monetary penalties, and to remove officers and directors. The FDIC has
similar enforcement authority, in addition to its authority to terminate the
Bank's deposit insurance in the absence of action by the Comptroller and upon a
finding that the Bank is in an unsafe or unsound condition, is engaging in
unsafe or unsound activities, or that its conduct poses a risk to the deposit
insurance fund or may prejudice the interest of its depositors.
Various requirements and restrictions under the laws of the United
States and the State of California affect the operations of the Bank. Federal
and California statutes and regulations relate to many aspects of the Bank's
operations, including reserves against deposits, ownership of deposit accounts,
interest rates payable on deposits, loans, investments, mergers and
acquisitions, borrowings, dividends, locations of branch offices, capital
requirements and disclosure obligations to depositors and borrowers.
The Bank's securities are registered with the Comptroller under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). As such, the
Bank is subject to the information, proxy solicitation, insider trading, and
other requirements and restrictions of the Exchange Act.
FINANCIAL SERVICES MODERNIZATION LEGISLATION
On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act of 1999 (the "Financial Services Modernization Act"). The
Financial Services Modernization Act repeals the two affiliation provisions of
the Glass-Steagall Act: Section 20, which restricted the affiliation of Federal
Reserve Member Banks with firms "engaged principally" in specified securities
activities; and Section 32, which restricts officer, director, or employee
interlocks between a member bank and any company or person "primarily engaged"
in specified securities activities. In addition, the Financial Services
Modernization Act also contains provisions that expressly preempt any state law
restricting the establishment of financial affiliations, primarily related to
insurance. The general effect of the law is to establish a comprehensive
framework to permit affiliations among commercial banks, insurance companies,
securities firms, and other financial service providers by revising and
expanding the BHCA framework
7
to permit a holding company system to engage in a full range of financial
activities through a new entity known as a Financial Holding Company. "Financial
activities" is broadly defined to include not only banking, insurance, and
securities activities, but also merchant banking and additional activities that
the Federal Reserve Board, in consultation with the Secretary of the Treasury,
determines to be financial in nature, incidental to such financial activities,
or complementary activities that do not pose a substantial risk to the safety
and soundness of depository institutions or the financial system generally.
Generally, the Financial Services Modernization Act:
- Repeals historical restrictions on, and eliminates many
federal and state law barriers to, affiliations among banks, securities firms,
insurance companies, and other financial service providers;
- Provides a uniform framework for the functional regulation of
the activities of banks, savings institutions, and their holding companies;
- Broadens the activities that may be conducted by national
banks, banking subsidiaries of bank holding companies, and their financial
subsidiaries;
- Provides an enhanced framework for protecting the privacy of
consumer information;
- Adopts a number of provisions related to the capitalization,
membership, corporate governance, and other measures designed to modernize the
Federal Home Loan Bank system;
- Modifies the laws governing the implementation of the
Community Reinvestment Act ("CRA"), and
- Addresses a variety of other legal and regulatory issues
affecting both day-to-day operations and long-term activities of financial
institutions.
The Financial Services Modernization Act also permits national banks to
engage in expanded activities through the formation of financial subsidiaries. A
national bank may have a subsidiary engaged in any activity authorized for
national banks directly or any financial activity, except for insurance
underwriting, insurance investments, real estate investment or development, or
merchant banking, which may only be conducted through a subsidiary of a
Financial Holding Company. Financial activities include all activities permitted
under new sections of the BHCA or permitted by regulation.
A national bank seeking to have a financial subsidiary, and each of its
depository institution affiliates, must be "well-capitalized" (as defined in the
regulations) and "well-managed" (as defined in the regulations). The total
assets of all financial subsidiaries may not exceed the lesser of 45% of a
bank's total assets, or $50 billion. A national bank must exclude from its
assets and equity all equity investments, including retained earnings, in a
financial subsidiary. The assets of the subsidiary may not be consolidated with
the bank's assets. The bank must also have policies and procedures to assess
financial subsidiary risk and protect the bank from such risks and potential
liabilities.
The Bank does not believe that the Financial Services Modernization Act
will have a material adverse effect on our operations in the near-term. However,
to the extent that it permits banks, securities firms, and insurance companies
to affiliate, the financial services industry may experience further
consolidation. The Financial Services Modernization Act is intended to grant to
community banks certain powers as a matter of right that larger institutions
have accumulated on an ad hoc basis. Nevertheless, this act may have the result
of increasing the amount of competition that the Bank faces from larger
institutions and other types of companies offering financial products, many of
which may have substantially more financial resources than the Bank.
8
DIVIDENDS AND OTHER TRANSFERS OF FUNDS
The FDIC and the Comptroller also have authority to prohibit the Bank
from engaging in activities that, in the FDIC's and Comptroller's opinion,
constitute unsafe or unsound practices in conducting its business. It is
possible, depending upon the financial condition of the bank in question and
other factors, that the FDIC and the Comptroller could assert that the payment
of dividends or other payments might, under some circumstances, be such an
unsafe or unsound practice. Further, the FDIC and the Comptroller and the
Federal Reserve Board have established guidelines with respect to the
maintenance of appropriate levels of capital by banks or bank holding companies
under their jurisdiction. Compliance with the standards set forth in such
guidelines and the restrictions that are or may be imposed under the prompt
corrective action provisions of federal law could limit the amount of dividends
which the Bank may pay. An insured depository institution is prohibited from
paying management fees to any controlling persons or, with certain limited
exceptions, making capital distributions if after such transaction the
institution would be "undercapitalized" (as defined in the regulations). See
"-Prompt Corrective Regulatory Action and Other Enforcement Mechanisms" and
"-Capital Standards" for a discussion of these additional restrictions on
capital distributions.
CAPITAL STANDARDS
The Federal Reserve Board, the Comptroller and the FDIC have adopted
risk-based minimum capital guidelines intended to provide a measure of capital
that reflects the degree of risk associated with a banking organization's
operations for both transactions reported on the balance sheet as assets and
transactions, such as letters of credit and recourse arrangements, which are
recorded as off balance sheet items. Under these guidelines, nominal dollar
amounts of assets and credit equivalent amounts of off balance sheet items are
multiplied by one of several risk adjustment percentages, which range from 0%
for assets with low credit risk, such as certain U.S. Treasury securities, to
100% for assets with relatively high credit risk, such as commercial loans.
The federal banking agencies require a minimum ratio of qualifying total
capital to risk-adjusted assets of 8% and a minimum ratio of Tier 1 capital to
risk-adjusted assets of 4%. In addition to the risk-based guidelines, federal
banking regulators require banking organizations to maintain a minimum amount of
Tier 1 capital to total assets, referred to as the leverage ratio. For a banking
organization rated in the highest of the five categories used by regulators to
rate banking organizations, the minimum leverage ratio of Tier 1 capital to
total assets must be 3%. In addition to these uniform risk-based capital
guidelines and leverage ratios that apply across the industry, the regulators
have the discretion to set individual minimum capital requirements for specific
institutions at rates significantly above the minimum guidelines and ratios.
The following table presents the amounts of regulatory capital and the
capital ratios for the Bank, compared to its minimum regulatory capital
requirements as of December 31, 1999 (dollars in thousands).
[Enlarge/Download Table]
AS OF DECEMBER 31, 1999
------------------------------------------------------------------
ACTUAL REQUIRED EXCESS
------------------ ------------------ -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------- ----- ------- -----
Leverage ratio .............................. $25,157 7.2% $14,975 4.0% $10,182 3.2%
Tier 1 risk-based capital ratio ............. $25,157 9.0% $16,772 4.0% $ 8,385 5.0%
Total risk-based capital ratio .............. $32,088 11.5% $27,903 8.0% $ 4,185 3.5%
PROMPT CORRECTIVE ACTION AND OTHER ENFORCEMENT MECHANISMS
Federal banking agencies possess broad powers to take corrective and
other supervisory action to resolve the problems of insured depository
institutions, including but not limited to those institutions that fall below
one or more prescribed minimum capital ratios. Each federal banking agency has
promulgated regulations defining the following five categories in which an
insured depository institution will be placed, based on its capital ratios: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized. At December 31, 1999, the
Bank exceeded the required ratios for classification as "well capitalized."
An institution that, based upon its capital levels, is classified as
well capitalized, adequately capitalized, or undercapitalized may be treated as
though it were in the next lower capital category if the appropriate federal
9
banking agency, after notice and opportunity for hearing, determines that an
unsafe or unsound condition or an unsafe or unsound practice warrants such
treatment. At each successive lower capital category, an insured depository
institution is subject to more restrictions. The federal banking agencies,
however, may not treat a significantly undercapitalized institution as
critically undercapitalized unless its capital ratio actually warrants such
treatment.
In addition to measures taken under the prompt corrective action
provisions, commercial banking organizations may be subject to potential
enforcement actions by the federal regulators for unsafe or unsound practices in
conducting their businesses or for violations of any law, rule, regulation, or
any condition imposed in writing by the agency or any written agreement with the
agency.
SAFETY AND SOUNDNESS STANDARDS
The federal banking agencies have adopted guidelines designed to assist
the federal banking agencies in identifying and addressing potential safety and
soundness concerns before capital becomes impaired. The guidelines set forth
operational and managerial standards relating to: (i) internal controls,
information systems and internal audit systems, (ii) loan documentation, (iii)
credit underwriting, (iv) asset growth, (v) earnings, and (vi) compensation,
fees and benefits. In addition, the federal banking agencies have also adopted
safety and soundness guidelines with respect to asset quality and earnings
standards. These guidelines provide six standards for establishing and
maintaining a system to identify problem assets and prevent those assets from
deteriorating. Under these standards, an insured depository institution should:
(i) conduct periodic asset quality reviews to identify problem assets, (ii)
estimate the inherent losses in problem assets and establish reserves that are
sufficient to absorb estimated losses, (iii) compare problem asset totals to
capital, (iv) take appropriate corrective action to resolve problem assets, (v)
consider the size and potential risks of material asset concentrations, and (vi)
provide periodic asset quality reports with adequate information for management
and the board of directors to assess the level of asset risk. These new
guidelines also set forth standards for evaluating and monitoring earnings and
for ensuring that earnings are sufficient for the maintenance of adequate
capital and reserves.
PREMIUMS FOR DEPOSIT INSURANCE
The Bank's deposit accounts are insured by the Bank Insurance Fund
("BIF"), as administered by the FDIC, up to the maximum permitted by law.
Insurance of deposits may be terminated by the FDIC upon a finding that the
institution has engaged in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations, or has violated any applicable law,
regulation, rule, order, or condition imposed by the FDIC or the institution's
primary regulator.
The FDIC charges an annual assessment for the insurance of deposits,
which as of December 31, 1999, ranged from 0 to 27 basis points per $100 of
insured deposits, based on the risk a particular institution poses to its
deposit insurance fund. The risk classification is based on an institution's
capital group and supervisory subgroup assignment. Pursuant to the Economic
Growth and Paperwork Reduction Act of 1996 (the "Paperwork Reduction Act"), at
January 1, 2000, the Bank began paying, in addition to its normal deposit
insurance premium as a member of the BIF, an amount equal to approximately 2.12
basis points per $100 of insured deposits toward the retirement of the Financing
Corporation bonds ("Fico Bonds") issued in the 1980s to assist in the recovery
of the savings and loan industry. Members of the Savings Association Insurance
Fund ("SAIF"), by contrast, pay, in addition to their normal deposit insurance
premium, approximately 6.4 basis points. Under the Paperwork Reduction Act, the
FDIC is not permitted to establish SAIF assessment rates that are lower than
comparable BIF assessment rates. The Paperwork Reduction Act also provided for
the merging of the BIF and the SAIF by January 1, 1999 provided there were no
financial institutions still chartered as savings associations at that time.
Although legislation to eliminate the savings association charter has been
proposed, as of January 1, 1999, there were still financial institutions
chartered as savings associations.
INTERSTATE BANKING AND BRANCHING
The BHCA permits bank holding companies from any state to acquire banks
and bank holding companies located in any other state, subject to certain
conditions, including certain nationwide- and state-imposed concentration
limits. The Bank has the ability, subject to certain restrictions, to acquire by
acquisition or merger
10
branches outside its home state. The establishment of new interstate branches is
also possible in those states with laws that expressly permit it. Interstate
branches are subject to certain laws of the states in which they are located.
Competition may increase further as banks branch across state lines and enter
new markets.
COMMUNITY REINVESTMENT ACT AND FAIR LENDING DEVELOPMENTS
The Bank is subject to certain fair lending requirements and reporting
obligations involving home mortgage lending operations and Community
Reinvestment Act activities. The CRA generally requires the federal banking
agencies to evaluate the record of a financial institution in meeting the credit
needs of its local communities, including low- and moderate-income
neighborhoods. A bank may be subject to substantial penalties and corrective
measures for a violation of certain fair lending laws. The federal banking
agencies may take compliance with such laws and CRA obligations into account
when regulating and supervising other activities.
A bank's compliance with its CRA obligations is based on a
performance-based evaluation system which bases CRA ratings on an institution's
lending service and investment performance. When a bank holding company applies
for approval to acquire a bank or other bank holding company, the Federal
Reserve Board will review the assessment of each subsidiary bank of the
applicant bank holding company, and such records may be the basis for denying
the application. Based on an examination conducted July 27, 1998, the Bank was
rated "Satisfactory" in complying with its CRA obligations.
ACCOUNTING MATTERS
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise." SFAS No. 134 amends SFAS No.
65, "Accounting for Certain Mortgage Banking Activities," which establishes
accounting and reporting standards for certain activities of mortgage banking
enterprises and other enterprises that conduct operations that are substantially
similar. SFAS No. 134 requires that after the securitization of mortgage loans
held for sale, the resulting mortgage-backed securities and other retained
interests should be classified in accordance with SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," based on the company's
ability and intent to sell or hold those investments. SFAS No. 134 became
effective for the first fiscal quarter beginning after December 15, 1998. The
adoption of SFAS No. 134 did not have a material impact on the Bank's results of
operations or financial position when adopted.
INVESTMENT CONSIDERATIONS THAT MAY AFFECT FUTURE RESULTS
The following discusses certain factors that may affect the Bank's
financial results and operations and should be considered in your evaluation of
the Bank. Statements and financial discussion and analysis by management
contained throughout this report that are not historical facts, are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Return Act of 1995. Forward-looking statements
involve a number of risks, and uncertainties. The important factors that could
cause future results to differ materially from the forward-looking statements
include, without limitation:
THERE ARE UNCERTAINTIES IN INTEGRATING KOREA FIRST BANK OF NEW YORK'S
BUSINESS OPERATIONS WITH OUR OPERATIONS AND REALIZING ENHANCED EARNINGS. If we
are unable to integrate Korea First Bank of New York's business successfully
with ours, this could hurt our business. The acquisition involves the
integration of companies that had previously operated independently. Successful
integration of our operations depends primarily on the Bank's ability to
consolidate operations, systems and procedures and to eliminate redundancies and
costs. Because the acquisition occurred so recently, we cannot ensure that we
will be able to integrate the operations of Korea First Bank of New York into
the Bank without encountering difficulties, including, without limitation, the
loss of key employees and customers, the disruption of our respective ongoing
businesses or possible inconsistencies in standards, controls, procedures and
policies.
DETERIORATION OF ECONOMIC CONDITIONS IN SOUTHERN CALIFORNIA, NEW YORK OR
KOREA COULD ADVERSELY AFFECT OUR LOAN PORTFOLIO AND REDUCE THE DEMAND FOR OUR
SERVICES. We focus our business primarily in Korean communities in Southern
California and in New York. In the early 1990s, the California economy
experienced an
11
economic recession that increased the level of delinquencies and losses for us
and many of the state's other financial institutions. Another recession could
occur. An economic slowdown in California or New York could have the following
consequences, any of which could reduce our net earnings:
- Loan delinquencies may increase;
- Problem assets and foreclosures may increase;
- Claims and lawsuits may increase;
- Demand for our products and services may decline;
- Collateral for loans may decline in value below the principal
amount owed by the borrower.
In addition, many of our customers have assets and families in Korea. An
economic downturn in Korea could result in our customers allocating their
resources to Korea rather than to the United States.
LOAN LOSS RESERVES MAY NOT COVER ACTUAL LOAN LOSSES. If the actual loan
losses exceed the amount reserved, it will hurt our business. The Bank tries to
limit the risk that borrowers will fail to repay loans by carefully underwriting
the loans. Losses nevertheless occur. The Bank creates reserves for estimated
loan losses in their accounting records. We base these allowances on estimates
of the following:
- industry standards;
- historical experience with our loans;
- evaluation of current and predicted economic conditions;
- regular reviews of the quality, mix and size of the overall loan
portfolio;
- regular reviews of delinquencies; and
- the quality of the collateral underlying their loans.
A DOWNTURN IN THE REAL ESTATE MARKET COULD SERIOUSLY IMPAIR OUR LOAN
PORTFOLIO. As of December 31, 1999, approximately 42% of the value of our loan
portfolio consisted of loans secured by various types of real estate. In
addition, at December 31, 1999, approximately 96% of the value of Korea First
Bank of New York's loan portfolio consisted of loans secured by various types of
real estate. If real estate values decline significantly, especially in
California or New York, higher vacancies and other factors could harm the
financial condition of our borrowers, the collateral for our loans will provide
less security, and we would be more likely to suffer losses on defaulted loans.
CHANGES IN INTEREST RATES AFFECT OUR PROFITABILITY. Changes in
prevailing interest rates may hurt our business. We derive our income mainly
from the difference or "spread" between the interest earned on loans, securities
and other interest-earning assets, and interest paid on deposits, borrowings and
other interest-bearing liabilities. In general, the wider the spread, the more
we earn. When market rates of interest change, the interest we receive on our
assets and the interest we pay on our liabilities will fluctuate. This can cause
decreases on our spread and can greatly affect our income. In addition, interest
rates affect how much money we can lend. For example, when interest rates rise,
loan originations tend to decrease.
WE FACE STRONG COMPETITION FROM FINANCIAL SERVICE COMPANIES AND OTHER
COMPANIES THAT OFFER BANKING SERVICES THAT CAN HURT OUR BUSINESS. We have
offices in Southern California, the Silicon Valley, Seattle, Chicago and New
York. Increased competition in our markets may result in reduced loans and
deposits. Ultimately, we may not be able to compete successfully against current
and future competitors. Many competitors offer the same or
12
similar banking services that we offer in our service areas. These competitors
include national banks, regional banks and other community banks. We also face
competition from many other types of financial institutions, including, without
limitation, savings and loans, finance companies, brokerage firms, insurance
companies, credit unions, mortgage banks and other financial intermediaries.
WE FACE POTENTIAL UNCERTAINTIES AND CHANGES TO INDUSTRY REGULATIONS. The
Bank, as a national banking association, is subject to significant governmental
supervision and regulation. These regulations are intended primarily for the
protection of depositors. Statutes and regulations affecting us may be changed
at any time, and the interpretation of these statutes and regulations by
examining authorities may also change. Congress and the President have recently
passed and enacted significant changes to these statutes and regulations. There
can be no assurance that such changes to the statutes and regulations or in
their interpretation will not adversely affect our business. The Bank is subject
to regulation and examination by the Comptroller of the Currency. In addition to
governmental supervision and regulation, the Bank is subject to changes in other
federal and state laws, including changes in tax laws, which could materially
affect the banking industry.
FUTURE SALES OF SECURITIES COULD DIMINISH THE INTERESTS OF OUR
SHAREHOLDERS. If we raise additional funds or make acquisitions by using equity
or convertible debt securities, the percentage ownership of our shareholders
will be diluted. Also, any new securities could have rights, preferences and
privileges senior to those of our common stock. We currently do not have any
commitments for additional financing. We cannot be certain that additional
financing will be available in the future to the extent required or that, if
available, it will be made on acceptable terms.
IF WE LOSE KEY EMPLOYEES, OUR BUSINESS MAY SUFFER. If we lost key
employees temporarily or permanently, it could hurt our business. We could be
particularly hurt if our key employees went to work for competitors. Our future
success depends on the continued contributions of our existing senior management
personnel, particularly on the efforts of Benjamin Hong, the President and Chief
Executive Officer and the Chairman of the Bank.
ENVIRONMENTAL LAWS COULD FORCE THE BANKS TO PAY FOR ENVIRONMENTAL
PROBLEMS. The cost of cleaning up or paying damages and penalties associated
with environmental problems could increase our operating expenses. When a
borrower defaults on a loan secured by real property, the Bank often purchases
the property in foreclosure or accepts a deed to the property surrendered by the
borrower. The Bank may also take over the management of commercial properties
whose owners have defaulted on loans. The Bank also owns and leases premises
where our branches and other facilities are located. Although the Bank has
lending, foreclosure and facilities guidelines intended to exclude properties
with an unreasonable risk of contamination, hazardous substances may exist on
some of the properties that we own, manage or occupy. The Bank may face the risk
that environmental laws could force us to clean up the properties at our
expense. It may cost much more to clean a property than the property is worth.
The Bank could also be liable for pollution generated by a borrower's operations
if we take a role in managing those operations after a default. The Bank also
may find it difficult or impossible to sell contaminated properties. In
addition, Nara may be subject to environmental liabilities on certain of its
leased properties.
WE ARE EXPOSED TO THE RISKS OF NATURAL DISASTERS. Our most significant
operations are concentrated in Southern California. A major earthquake could
result in material loss to the Bank. A significant percentage of our loans are
and will be secured by real estate. California is an earthquake-prone region.
The Bank's properties and most of the real and personal property securing loans
in our portfolio are in Southern California. Many of our borrowers could suffer
uninsured property damage, experience interruption of their businesses or lose
their jobs after an earthquake. Those borrowers might not be able to repay their
loans, and the collateral for loans could decline significantly in value. Unlike
a bank with operations that are more geographically diversified, we are
vulnerable to greater losses if an earthquake, fire, flood or other natural
catastrophe occurs in Southern California.
OTHER RISKS. From time to time the Bank details other risks with respect
to its business and/or financial results in its filings with the Comptroller of
the Currency.
13
ITEM 2 PROPERTIES
At December 31, 1999, the Bank had entered into ten leases and owns one
building. The Bank owns and leases properties for use as bank premises and
otherwise owns real estate taken in foreclosure. The Bank owns the property at
136-40 39th Avenue, Flushing, New York. Office space of the building totals of
4,786 square feet on the first floor and 3,260 square feet on the second floor.
The Bank purchased the Flushing branch of Korea Exchange Bank in October 1998
for $1,194,000, depreciated at a rate of $4,000 per month for 25 years. The
Bank's total occupancy expense, exclusive of furniture and equipment expense,
for the year ended December 31, 1999, was $1,880,847.
In connection with the acquisition of Korea First Bank of New York on
February 25, 2000, the Bank acquired ownership of the additional buildings
located at 29 West 30th Street in New York (Manhattan Office) and 78-14
Roosevelt Avenue, Jackson Heights (Jackson Heights Office), and took over one
additional lease. The Manhattan Office is twelve-story building. The bank uses
the basement, first, second, and twelfth floors and leases the rest of the
building, which is occupied by 13 tenants. The Jackson Heights Office is 15,417
square feet and used solely by the Bank. The office located at 138-02 Northern
Boulevard, Flushing, New York has 30-year lease contract expiring on March 31,
2022. This lease calls for current monthly payments of $18,375 per month with a
4% increase ever three years. The next increase will become effective on March
31, 2002.
ITEM 3 LEGAL PROCEEDINGS
The Bank is a party to ordinary routine litigation incidental to its
business, none of which is considered likely to have a materially adverse effect
on the Bank. Neither the Bank nor any of its property is subject to any other
material pending legal proceedings. In connection with the acquisition of Korea
First Bank of New York, the Bank assumed certain litigation pending against
Korea First Bank of New York, however, the Bank also obtained full
indemnification from the Korea Deposit Insurance Corporation for all such
litigation up to $3.0 million plus 50% indemnification for any amounts over $3.0
million. The Bank believes such indemnification is sufficient to cover any
potential liabilities.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted by the Bank to a vote of security holders,
through the solicitation of proxies or otherwise, during the fourth quarter of
its fiscal year ending December 31, 1999.
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Bank's common stock, par value $3.00 per share, is traded on the
Nasdaq National Market under the symbol "NARA."
There were 4,403,753 shares of the Bank's common stock held by
approximately 10 beneficial owners as of March 15, 2000. The following table
sets forth, for the calendar quarters indicated, the range of high and low sales
prices for the common stock for each quarter within the last two fiscal years.
Sales prices represent actual sales of which management of the Bank has
knowledge.
The following table sets forth, for the calendar quarters indicated, the
range of high and low sales prices for the common stock for each quarter within
the last two fiscal years. Sales prices represent actual sales of which
management of the Bank has knowledge.
14
[Download Table]
High Sales Price Low Sales Price
---------------- ---------------
March 31, 1998 ............. $ 11.63 $ 9.25
June 30, 1998 .............. $ 13.63 $ 11.75
September 30, 1998 ......... $ 12.50 $ 10.00
December 31, 1998 .......... $ 9.75 $ 8.00
March 31, 1999 ............. $ 10.75 $ 8.00
June 30, 1999 .............. $ 10.38 $ 9.75
September 30, 1999 ......... $ 10.25 $ 9.50
December 31, 1999 .......... $ 10.00 $ 9.25
The Bank's stock was traded by three brokerage companies: namely, Sutro
& Co., Hoefer & Arnett and Ryan, Beck & Co.
In June, 1999 the Bank paid an 8.0% stock dividend to shareholders of
record on May 10, 1999. Other than that stock dividend, the Bank has paid no
other dividends on its common stock. Future dividends are subject to the
discretion of the Board of Directors and will depend upon a number of factors,
including future earnings, financial condition, cash needs and general business
conditions. Any dividend must comply with applicable bank regulations. Pursuant
to such regulations, among other restrictions, the Bank can not pay dividends
out of its capital; all dividends must be paid out of net profits then on hand,
after deducting for expenses such as losses and bad debts. In addition, the
payment of dividends out of net profits of a national bank is further limited by
statute which prohibits a bank from declaring a dividend on its shares of common
stock until the surplus fund equals the amount of capital stock, or if the
surplus fund does not equal the amount of capital stock, until not less than
one-tenth of its net profits for the preceding half-year (in the case of
quarterly dividends) or at least one-tenth of its net profits for the preceding
two consecutive half-years (in case of annual dividends) are transferred to the
surplus fund.
ITEM 6 SELECTED FINANCIAL DATA
The following table presents selected consolidated financial and other
data of the Bank for each of the years in the five-year period ended December
31, 1999. The information below should be read in conjunction with, and is
qualified in its entirety by, the more detailed information included elsewhere
herein including the Bank's Audited Consolidated Financial Statements and Notes
thereto.
15
[Enlarge/Download Table]
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA
Total interest income ..................... $ 25,220 $ 18,657 $ 13,279 $ 8,749 $ 5,657
Total interest expense .................... 7,919 6,107 4,204 2,747 1,708
--------- --------- --------- --------- ---------
Net interest income ....................... 17,301 12,550 9,075 6,002 2,949
Provision for loan losses ................. 3,395 1,430 1,130 775 600
--------- --------- --------- --------- ---------
Net interest income 13,906 11,120 7,945 5,227 3,349
after provision for loan losses .......
Other operating income .................... 8,060 6,269 4,802 3,351 2,772
Other operating expense ................... 16,337 12,463 8,939 6,617 5,343
--------- --------- --------- --------- ---------
Income before income tax (benefit) ........ 5,629 4,926 3,808 1,961 778
Income tax (benefit) ...................... 1,657 1,730 1,111 (99) (376)
--------- --------- --------- --------- ---------
Net income ................................ $ 3,972 $ 3,196 $ 2,697 $ 2,060 $ 1,154
--------- --------- --------- --------- ---------
PER SHARE DATA:
Net income - basic ........................ $ 0.90 $ 0.73 $ 0.79 $ 0.73 $ 0.62
Net income - diluted ...................... 0.87 0.70 0.77 0.73 0.62
Book value (period end) ................... 6.07 5.22 5.73 3.46 3.67
Number of common shares outstanding ....... 4,404 4,369 3,424 2,819 1,876
BALANCE SHEET DATA - AT PERIOD END:
Assets .................................... $ 358,898 $ 276,126 $ 181,134 $ 122,475 $ 86,659
Securities ................................ 33,331 16,980 18,549 12,116 11,188
Loans, net ................................ 235,287 164,711 107,877 78,634 53,730
Deposits .................................. 319,868 249,309 158,638 110,211 78,084
Shareholders' equity ...................... 26,726 22,805 19,628 9,744 6,894
AVERAGE BALANCE SHEET DATA:
Assets .................................... $ 312,757 $ 213,527 $ 147,228 $ 99,363 $ 66,527
Securities ................................ 22,622 16,621 13,523 12,933 4,774
Loans, net ................................ 205,991 136,424 92,880 61,209 39,117
Deposits .................................. 280,283 188,368 132,663 89,234 60,428
Shareholders' equity ...................... 24,944 21,199 11,628 8,060 4,163
SELECTED PERFORMANCE RATIOS:
Return on average assets .................. 1.27% 1.50% 1.83% 2.07% 1.73%
Return on average shareholders' equity .... 15.92% 15.08% 23.19% 25.56% 27.72%
Net interest spread(1) .................... 4.9% 5.1% 5.50% 5.40%
Net yield on interest-earning assets(2).... 6.19% 6.52% 7.10% 7.00% 7.20%
Average shareholders' equity to
average assets........................... 7.98% 9.93% 7.90% 8.11% 6.26%
REGULATORY CAPITAL RATIO:
Leverage .................................. 7.23% 8.37% 11.50% 8.40% 8.30%
Tier 1 risk-based ......................... 9.01% 10.18% 14.63% 11.10% 11.50%
Total risk-based .......................... 11.49% 11.44% 15.88% 12.30% 12.80%
ASSET QUALITY:
Nonaccrual loans .......................... $ 1,523 $ 2,310 $ 442 $ 424 $ 443
Loans 90 days or more past due ............ -- -- 103 428 --
--------- --------- --------- --------- ---------
Total nonperforming loans ................. 1,523 2,310 545 852 443
Other real estate owned ................... 44 4 52 -- 634
--------- --------- --------- --------- ---------
Total nonperforming assets ................ $ 1,567 $ 2,314 $ 597 $ 852 $1077
ASSET QUALITY RATIOS:
Nonaccrual loans to loans ................. 0.65% 1.40% 0.41% 0.54% 0.82%
Nonaccrual assets to total assets ......... 0.42% 0.84% 0.24% 0.35% 0.51%
Allowance for loan losses to loans ........ 1.52% 1.80% 1.98% 2.29% 2.56%
Allowance for loan losses to
nonaccrual loans ........................ 239.26% 128.18% 483.71% 425.00% 310.84%
Net charge-offs to average loans .......... 1.41% 0.66% 0.85% 0.56% 2.37%
(1) Difference between the interest yield on interest-earning assets and
interest paid on interest-bearing liabilities
(2) Net interest income expressed as a percentage of average total
interest-earning assets.
16
The increase in net earnings for 1999 compared to 1998, and from 1998
compared to 1997 was primarily the result of an increase in net interest income
and an increase in other operating income. Increased net income for 1999 and
1998 reflected higher volumes for average earnings assets for each year. The
increases in net income and operating income for 1999 and 1998 were partially
offset by increases in interest expense and other operating expense. The
following table summarizes Nara Bank's increases and decrease in income and
expense for the years indicated.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
Some of the statements under "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and elsewhere in this document
constitute forward-looking statements. These statements involve known and
unknown risks, uncertainties and other factors that may cause our actual
results, levels of activity, performance or achievements expressed or implied by
the forward-looking statements. These factors include, among other things, those
listed under "Investment Considerations That May Affect Future Results" and
elsewhere in this document.
In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "could," "expects," "plans,"
"intends," "considering," "anticipates," "believes," "estimates," "predicts,"
"potential," or "continue" or the negative of such terms and other comparable
terminology.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance of achievements.
OVERVIEW
In 1999, the Bank opened another loan production office in Chicago in
August of 1999. On November 9, 1999, the bank signed an Agreement and Plan of
Reorganization ("Agreement") to purchase three branches of Korea First Bank of
New York. As of February 25, 2000, the Bank completed its acquisition of Korea
First Bank of New York, for which the Bank paid approximately $8.7 million to
the Korea Deposit Insurance Corporation, the sole shareholder of Korea First
Bank of New York, for all of the shares of stock of Korea First Bank of New
York, which were then canceled in connection with the acquisition.
The Bank reported net income for the year ended December 31, 1999 of
$4.0 million or $0.87 per diluted share, compared with $3.2 million or $0.70 per
diluted share for the previous year ended December 31, 1998. The Bank reported
net income of $2.7 million or $0.77 per diluted share for the year ended
December 31, 1997. The increase in net earnings for 1999 compared to 1998, and
from 1998 compared to 1997 was primarily the result of an increase in net
interest income and an increase in other operating income. Increased net income
for 1999 and 1998 reflected higher volumes for average earnings assets for each
year. The increases in net income and operating income for 1999 and 1998 were
partially offset by increases in interest expense and other operating expense.
The following table summarizes Nara Bank's increases and decreases, as
applicable, in income and expense for the years indicated.
17
RESULTS OF OPERATIONS
OPERATIONS SUMMARY
[Enlarge/Download Table]
INCREASE INCREASE
YEAR (DECREASE) YEAR (DECREASE) YEAR
ENDED --------------------- ENDED -------------------- ENDED
(dollars in thousands) 1999 AMOUNT % 1998 AMOUNT % 1997
------- ------- ------- ------- ------- ------- -------
Interest Income ................... $25,220 $ 6,563 35.2% $18,657 $ 5,378 40.5% $13,279
Interest expense .................. 7,919 1,812 29.7% 6,107 1,903 45.3% 4,204
------- ------- ------- ------- ------- ------- -------
Net interest income ............... 17,301 4,751 37.9% 12,550 3,475 38.3% 9,075
Provision for loan losses ......... 3,395 1,965 137.4% 1,430 300 26.5% 1,130
Other operating income ............ 8,060 1,791 28.6% 6,269 1,467 30.5% 4,802
Other operating expense ........... 16,337 3,874 31.1% 12,463 3,523 39.4% 8,940
------- ------- ------- ------- ------- ------- -------
Income before income tax .......... 5,629 703 14.3% 4,926 1,119 29.4% 3,807
Income Tax (benefit) .............. 1,657 (73) -4.2% 1,730 619 55.7% 1,111
------- ------- ------- ------- ------- ------- -------
Net Income ........................ $ 3,972 $ 776 24.3 $ 3,196 $ 500 18.5% $ 2,696
======= ======= ======= ======= ======= ======= =======
NET INTEREST INCOME
For 1999, the Bank reported net interest income of $17.3 million, which
was an increase of $4.8 million, or 38.4% from 1998's net interest income of
$12.5 million. The Bank's volume growth in interest-earning assets, primarily
loan growth, was the cause of a 34.8% increase in total interest income to $25.2
million in 1999 from $18.7 million in 1998. Net interest income increased $3.4
million or 37.4% to$12.5 million for the year ended December 31, 1998, from $9.7
million at 1997 year-end. This increase was primarily due to the increased
volume of interest-earning assets, especially loans.
Interest in fees on loans increased $6.0 million or 39.2% to $21.3
million for 1999, from $15.3 million for 1998. Of this increase, approximately
$7.1 million is attributable to the volume growth, and negative $1.1 million is
attributable to rate decrease. The Bank's average yield earned on loans
decreased to 10.3% in 1999, from 11.2% in 1998, due to decrease in prime rates
that are tied directly to the loan interest rates. Interest income on investment
securities increased $321,000 or 24.2% to $1.6 million in 1999, from $1.3
million in 1998, mainly due to growth in investment portfolio. The Bank's
average yield earned on investment securities decreased to 7.1% in 1999, from
7.7% for 1998. Overall, the Bank's yield on average interest-earning assets has
decreased to 9.3% in 1999, from 10.0% in 1998.
Interest and fees on loans increased $4.3 million or 39.1%, to $15.3
million in 1998, from $11.0 million in 1997. Of this increase, approximately
$4.8 million is attributable to the volume growth, which was offset by a
$544,000 decrease attributable to a decline in interest rates. The Bank's
average yield earned on loans slightly decreased to 11.2% for 1998, from 11.8%
in 1997. Interest income on investment securities increased by $351,000 to $1.3
million in 1998, from $977,000 in 1997. The Bank's average yield earned on
investment securities increased to 7.7% for 1998, from 7.3% in 1997. Overall,
the Bank's yield on average interest-earning assets has slightly decreased to
10.0% in 1998, compared to 10.3% in 1997.
Interest paid on deposits increased $1.8 million or 29.7% to $7.9
million in 1999, from $6.1 million in 1998. Of this increase, approximately $2.3
million is attributable to 28.1% average volume increase in interest-bearing
deposits which was offset by an approximately $436,000 decline, attributable to
a decrease in interest paid on these deposits. The Bank's overall cost on
average interest-bearing liabilities decreased to 4.4% in 1999, compared to 4.9%
in 1998. Interest paid on deposits increased $1.9 million or 45.3% to $6.1
million in 1998, from $4.2 million in 1997. Of this increase, approximately $1.8
million is attributable to a 30.0% average volume increase in interest-bearing
deposits, which was offset by an approximately $77,000 decrease in interest
rates paid on these deposits. Overall, Nara Bank's cost on average
interest-earning liabilities remained stable at 4.9% for 1998 compared to 4.8%
for 1997.
18
NET YIELD AND INTEREST RATE SPREAD
The Bank analyzes its earnings performance using, among other measures,
the interest rate spread and net yield on interest-earning assets. The interest
rate spread represents the difference between the interest yield received on
interest-earning assets and the interest rate paid on interest-bearing
liabilities. Net interest income, when expressed as a percentage of average
total interest-earning assets, is referred to as the net yield on
interest-earning assets or net interest margin. The Bank's net yield on
interest-earning assets is affected by changes in the yields earned on assets
and rates paid on liabilities, referred to as rate changes. Interest rates
charged on the loans are affected principally by the demand for such loans, the
supply of money available for lending purposes, and other competitive factors.
These factors are in turn affected by general economic conditions and other
factors beyond the Bank's control, such as federal economic policies, the
general supply of money in the economy, legislative tax policies, governmental
budgetary matters, and the action of the Federal Reserve Board. The table below
presents the average yield on each category of interest-earning asset, average
rate paid on each category of interest-bearing liability, and the resulting
interest rate spread and net yield on interest-earning assets for each year in
the three-year period ended December 31, 1999.
AVERAGE BALANCE SHEET AND ANALYSIS OF NET INTEREST INCOME
[Enlarge/Download Table]
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
----------------------------------- ------------------------------- ------------------------------
INTEREST AVERAGE INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
-------- -------- ------- -------- --------- ------- -------- --------- -------
(DOLLARS IN THOUSANDS)
INTEREST-EARNING
ASSETS:
Net Loans(1)(2) ........ $205,991 $ 21,309 10.3% $136,424 $ 15,264 11.2% $ 92,880 $ 10,970 11.8%
Time deposits with
other banks .......... 2,323 139 6.0% 958 56 5.8% 1,678 100 6.0%
Investment securities . 23,212 1,649 7.1% 17,192 1,328 7.7% 13,382 977 7.3%
Federal funds sold .... 39,948 2,124 5.3% 32,775 2,009 6.1% 20,438 1,231 6.0%
-------- -------- -------- -------- -------- --------
Total
interest-earning
assets ............... $271,474 $ 25,221 9.3% $187,349 $ 18,657 10.0% $128,378 $ 13,278 10.3%
======== ======== ======== ======== ======== ========
INTEREST-BEARING
LIABILITIES:
Deposits:
Demand,
interest-bearing .... 37,907 1,355 3.6% 27,022 993 3.7% 22,153 793 3.6%
Savings .............. 32,648 1,092 3.3% 13,748 529 3.8% 8,731 339 3.9%
Time certificates .... 107,229 5,362 5.0% 83,403 4,582 5.5% 56,812 3,067 5.4%
Subordinated
debentures/other
borrowings .......... 4,300 111 8.6% 78 4 5.1% 81 5 6.2%
-------- -------- -------- -------- -------- --------
Total
interest-bearing
liabilities .......... $179,071 $ 7,920 4.4% $124,251 $ 6,107 4.9% $ 87,777 $ 4,204 4.8%
======== ======== ======== ======== ======== ========
NET INTEREST INCOME
AND YIELD:
Net interest income ... $ 17,301 $ 12,550 $ 9,074
Net yield on
interest-earning
assets ............... 6.4% 6.7% 7.1%
Net interest spread ... 4.9% 5.1% 5.5%
(1) Loan fees, deferred fees and ALLL are included in interest income as follows
(dollars in thousands):
[Download Table]
DEFERRED FEES
YEAR ENDED DECEMBER 31, LOAN FEES (COST) ALLL
----------------------- --------- ------------- ------
1997 ................... $ 606 $ 45 $2,138
1998 ................... $ 585 $ 33 $3,644
1999 ................... $ 800 $ (86) $2,961
(2) Average loans outstanding including non-accrual loans.
The following table shows changes in interest income (including loan
fees) and interest expense and the amount attributable to variations in interest
rates and volumes for the period indicated. The variances attributable to
simultaneous volume and rate changes have been allocated to the change due to
volume and the change due to rate
19
categories in proportion to the relationship
of the absolute dollars amounts attributable solely to the change in volume and
to the change in rate.
[Enlarge/Download Table]
DECEMBER 31, 1999 COMPARED TO 1998 DECEMBER 31, 1998 COMPARED TO 1997
---------------------------------- -----------------------------------
NET CHANGE DUE TO NET CHANGE DUE TO
INCREASE -------------------- INCREASE --------------------
(DECREASE) RATE VOLUME (DECREASE) RATE VOLUME
---------- ------- ------- --------- ------- -------
INTEREST INCOME:
Interest and fees on net loans ............ $ 6,045 $(1,051) $ 7,095 $ 4,294 $ (578) $ 4,872
Interest on time deposits with other banks. 83 1 81 (44) (2) (42)
Interest on investment securities ......... 321 (107) 428 351 59 294
Interest on federal funds sold ............ 115 (266) 381 778 22 756
------- ------- ------- ------- ------- -------
TOTAL INTEREST-EARNING ASSETS ............... $ 6,564 $(1,252) $ 7,816 $ 5,379 $ (494) $ 5,873
======= ======= ======= ======= ======= =======
INTEREST EXPENSE:
Interest on demand deposits ............... $ 362 $ (26) $ 388 $ 200 $ 22 $ 178
Interest on savings ....................... 563 (59) 622 190 (3) 193
Interest on time certificates of deposit... 782 (356) 1,138 1,515 (54) 1,569
Interest on other borrowings .............. 107 5 102 (1) (1) 0
------- ------- ------- ------- ------- -------
Subordinated debentures
TOTAL INTEREST EXPENSE ...................... $ 1,814 $ (436) $ 2,250 $ 1,904 $ (36) $ 1,940
======= ======= ======= ======= ======= =======
NET INTEREST INCOME ......................... $ 4,750 $ (884) $ 5,634 $ 3,475 $ (448) $ 4,012
======= ======= ======= ======= ======= =======
The Bank's earnings depend largely upon the difference between the
income received from its loans and investments and the interest paid on its
liabilities, primarily interest paid on deposits. This difference is net
interest income. Net interest income represents the Bank's most significant
source of earnings. The Bank's ability to generate profitable levels of net
interest income is largely dependent on its ability to maintain sound asset
quality and appropriate levels of capital and liquidity.
The Bank's other operating income increased $1.8 million or 28.6%, to
$8.1 million in 1999 compared to $6.3 million in 1998, and increased by $1.5
million or 31.3% from $4.8 million in 1997. The Bank's other operating income is
primarily comprised of service charges on deposit accounts, gains on sales of
SBA loans, and fee income from letter of credit operations. Service charges on
deposit accounts, particularly non-sufficient fund fees and account analysis
fees, increased $1.2 million or 57.1% to $3.3 million in 1999 from $2.1 million
in 1998, and increased $442,000 or 26.2% in 1998 from $1.7 million in 1997.
These increases were mainly due to increases in deposits from the newly opened
branches, especially from the Flushing, New York branch acquired from Korea
Exchange Bank in 1998 as well as from the existing branches. The fee income
generated from the international letter of credit transactions increased
$784,000 or 75.0% to $1.8 million in 1999 from $1.0 million in 1998. The
activities from the Silicon Valley and New York area have contributed much to
this increase. Fee income generated from international letter of credit
transactions increased $135,000 or 14.8% in 1998 from $911,000 in 1997. Gains on
sales of SBA loans decreased $719,000 or 44.2% to $909,000 in 1999 from $1.6
million in 1998, mainly due to the decrease in premiums received from the sales.
Because the premium on SBA loan sales decreased, the Bank plans to keep much of
its loans and thereby earn interest income in coming years. The gains on sales
of SBA loans increased $322,000 or 24.6% in 1998 from $1.3 million in 1997. The
breakdown of other operating income by category is reflected below:
20
[Enlarge/Download Table]
INCREASE INCREASE
YEAR (DECREASE) YEAR (DECREASE) YEAR
ENDED -------------------- ENDED ------------------- ENDED
1999 AMOUNT % 1998 AMOUNT % 1997
------- ------- ------- ------- ------- ------- -------
OTHER OPERATING INCOME:
Service charge on deposits ..... $ 3,309 $ 1,177 55.2% $ 2,132 $ 442 26.1% $1,690
Gain on sale of SBA loans ...... 909 (719) -44.2% 1,628 322 24.7% 1,306
International service fee
income ...................... 1,830 784 75.0% 1,045 135 14.8% 911
Wire transfer fees ............. 444 213 92.2% 231 163 238.8% 68
Service fee income -- SBA ...... 631 126 24.9% 506 183 56.8% 322
Earnings on cash surrender
value ....................... 258 (7) -2.6% 265 129 94.7% 136
Others ......................... 679 218 47.2% 462 93 25.2% 369
------- ------- ---- ------- ------- ------ ------
TOTAL OTHER OPERATING INCOME ...... $ 8,060 $ 1,791 28.6% $ 6,269 $ 1,467 30.5% $4,802
======= ======= ==== ======= ======= ====== ======
OTHER OPERATING EXPENSES
Other operating expenses for 1999 increased $3.9 million or 31.1% to
$16.3 million from $12.5 million in the previous year. This increase is
primarily due to the growth and the expansion of the Bank. Salary and employee
benefits increased $2.2 million or 36.3%, mainly because of the need for
additional employees to support the Bank's growth and expansion and to maintain
the existing employees from the newly acquired Flushing New York branch. Bank's
premises and fixed assets expenses increased $664,000 or 33.5% because of the
leases and related expenses for the new branches opened during the year,
including Flushing New York. Data processing-related expenses, telephone and
other supplies also increased significantly as the Bank grew. The increase in
data processing-related expenses was mainly due to increase in account
transactions and partially due to network related expense. The increase in
telephone and other supplies also were due to continuous expansion of the Bank.
During 1998, other operating expenses also increased $3.5 million or
39.3% from $8.9 million in 1997. The increase was primarily due to the Bank's
growth and the expansion. Salary and related costs increased $1.6 million or
36.4% to $6.0 million from $4.4 million in 1997. The premises and fixed assets
expenses also increased $603,000 or 42.9% to $2.0 million from $1.4 million in
1997. Overall other operating expenses increased due to an expansion of the
Bank. A breakdown of other operating expenses by category is reflected below:
Other operating expenses generally reflect the direct expenses and
related administrative expenses associated with staffing, maintaining, promoting
and operating branch facilities. Consequently, other operating expenses have
increased as the asset size of Nara Bank has increased and the number of branch
offices and other offices has increased.
A breakdown of other operating expenses by category is reflected below:
[Enlarge/Download Table]
INCREASE INCREASE
YEAR (DECREASE) YEAR (DECREASE) YEAR
ENDED -------------------- ENDED ------------------- ENDED
1999 AMOUNT % 1998 AMOUNT % 1997
------- ------- ------- ------- ------- ------- -------
OTHER OPERATING INCOME:
Salaries and benefits ........... $ 8,171 $2,175 36.3% $ 5,996 $ 1,588 36.0% 4,408
Net occupancy ................... 1,881 455 31.9% 1,426 455 46.9% 971
Furniture and equipment ......... 762 209 37.8% 553 148 36.6% 405
Advertising ..................... 232 (25) -9.7% 257 46 22.1% 210
Communications .................. 370 80 27.6% 290 96 49.2% 195
Data processing ................. 1,432 471 49.0% 961 345 55.9% 616
Professional fees ............... 936 165 21.4% 771 156 25.4% 615
Office supplies ................. 403 93 29.9% 310 47 18.0% 263
Other ........................... 2,150 251 13.2% 1,899 643 51.2% 1,256
------- ------ ----- ------- ------- ----- -------
TOTAL OTHER OPERATING EXPENSES: ... $16,337 $3,874 31.1% $12,463 $ 3,524 39.4% $ 8,939
======= ====== ===== ======= ======= ===== =======
21
FINANCIAL CONDITION
At December 31, 1999, the Bank's total assets increased $82.8 million or
$30.0% to $358.9 million from $276.1 million at December 31, 1998. Net loans,
including loans for sale, increased $70.6 million or 42.9% to $235.5 million at
1999 year-end from $164.7 million at the previous year-end. This accounted for
85.3% of the total increase in assets. Total deposits at December 31, 1999 also
increased $70.6 million or 28.3% to $319.9 million from $249.3 million at the
previous year-end. This resulted from the internal growth, especially from the
branches opened during 1998.
The allowance for credit losses was $3.6 million or 1.5% of gross loans,
which was $238.9 million, at December 31, 1999 compared to $3.0 million or 1.8%
of gross loans, which was $167.2 million at December 31, 1998.
Nonaccrual loans decreased to $1.5 million or 0.6% of gross loans at
December 31, 1999 compared to $2.3 million or 1.4% at December 31, 1998. Other
real estate owned totaled $44,000 at year-end 1999 compared to $4,000 at
year-end 1998.
INVESTMENT SECURITY PORTFOLIO
Nara Bank's present policy permits investment in various types of
securities, certificates of deposits and federal funds sold in compliance with
various restrictions in the policy. The Bank may invest in any bond rates "A" or
higher. Nara Bank's policy states that the Bank's Investment Officer (or Chief
Financial Officer in the absence of Investment Officer) may make most
investments pursuant to the Investment Policy only with approval from the
President of the Bank.
Nara Bank classifies its securities as held-to-maturity or
available-for-sale. The securities, which Nara Bank has the ability and intent
to hold to maturity are classified as held-to-maturity securities. All other
securities are classified as available-for-sale. There were no trading
securities at December 31, 1999. As of December 31, 1999, held-to-maturity
securities totaled $17.3 million, compared to $17.0 million at December 31,1998
and $14.6 million at December 31, 1997, and the available-for-sale securities
totaled $16.0 million at December 31, 1999. There were no available-for-sale
securities at December 31, 1998 and $3.9 million at December 31, 1997. Of the
securities, securities with amortized cost of about $3.5 million were pledged to
secure public deposits and for other purposes as required or permitted by law at
December 31, 1999. The securities held by the Bank are treasury notes,
government sponsored agency bonds, and corporate bonds. This investment
portfolio composition reflects the Bank's investment strategy.
The main objectives of the Bank's investment strategy are to support a
sufficient level of liquidity while providing means to plan and maintain the
Bank's interest rate position, and to generate an adequate level of interest
income without taking undue risks. The Bank has invested in mid-term notes of
Korea-based companies in December 1997. Beginning of 1998, due to the financial
crisis in much of the Asia Pacific region, the market value of those corporate
bonds decreased below their amortized cost. Based on financial analysis of the
bond rating agencies, management believes that the bond-issuing companies have
the financial capabilities to honor the obligations under the original contracts
and that the decline in market value would be other than temporary. The Bank has
provided a $212,515 reserve for potential credit risk for these bonds. During
1999, as permitted with adoption of SFAS No. 133, the Banks reclassified those
bonds with a book value of $6.3 million and an estimated fair value of $5.9
million at December 31, 1998 from the held-to-maturity to the available-for-sale
portfolio. The bank sold four of these securities with a book value of $4.6
million for $4.8 million.
The following table summarizes the maturity of securities and their
pertinent weighted average yield ratios at the dates and for the periods
indicated (dollars in thousands):
22
[Enlarge/Download Table]
AT OR FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------
1999 1998 1997
----------------------------------- ----------------------------------- ---------
WEIGHTED WEIGHTED
TYPE AND MATURITY AMORTIZED MARKET AVERAGE AMORTIZED MARKET AVERAGE AMORTIZED
GROUPING COST VALUE YIELD COST VALUE YIELD COST
--------- -------- -------- -------- ------- -------- ---------
Held to maturity:
U.S. Government .................... $ 14,658 $ 13,820 6.75% $ 8,311 $ 8,312 5.37% 6,385
Due within one year ............... -- -- -- 501 505 5.74% 501
One to five years ................. 8,000 7,804 6.14% 3,603 2,987 5.43% 501
Five to ten years ................. 1,000 977 6.75% -- -- -- --
After ten years ................... 5,658 5,139 7.71% 4,808 4,820 7.52% 5,383
U.S. Corporate Notes ............... 2,627 2,321 7.17% 2,579 2,559 7.16% 2,004
Korean Corporate Notes ............. -- -- -- 6,303 5,871 8.38% 6,222
Allowance for Investment Valuation . -- -- -- (213) -- -- --
Available for sale:
U.S. Government .................... 11,051 10,902 6.88% -- -- -- 3,939
Due within one year ............... -- -- -- -- -- -- 1,299
One to five years ................. 5,555 5,531 6.55% -- -- -- --
Five to ten years ................. 4,996 4,888 7.14% -- -- -- 2,000
After ten years ................... 500 483 8.00% -- -- -- 640
U.S. Corporate Notes ............... 3,486 3,416 7.14% -- -- -- --
Korean Corporate Notes ............. 1,701 1,729 8.68% -- -- -- --
Total Investment Portfolio .......... $ 33,523 $ 32,188 6.97% $ 16,979 $ 16,742 7.37% $ 18,550
LOAN PORTFOLIO
The Bank's net loans increased by $70.6 million or 42.9% to $235.3
million at December 31, 1999 compared to $164.7 million at December 31, 1998. It
accounted for 74.7% of the Bank's total interest-earning assets at year-end 1999
compared to 68.3% at year-end 1998. While total net loans outstanding increased
42.9% as of December 31, 1999, average net loans for the year increased 51.0%
from the previous year. All major categories of the Bank's loan portfolio
reflected significant growth, with most of the increase occurring in SBA and
commercial loans. The increase was primarily due to internal growth, especially
from the Silicon Valley and Flushing, New York offices. The total loan
production in the Silicon Valley office alone increased 295.3% in 1999. SBA
loans increased 58.8% in 1999 as compared to 1998, Domestic commercial loans,
including real estate loans, increased 51.6% in 1999 as compared to 1998. The
Bank's international loans, including trade finance loans increased 39.8% in
1999 as compared to 1998, and consumer loans, including automobile loans,
increased 15.2% in 1999 as compared to 1998. Over 22% of the total loan increase
in 1999 was contributed by the Flushing, New York office, which the Bank
acquired at the end of 1998.
The Bank's net loans increased over 52.7% from $107.9 million in 1997 to
$164.7 million in 1998. Domestic commercial loans, including real estate loans,
increased 57.1% in 1998 as compared to 1997. The Bank's international loans,
including trade finance loans, increased 46.7% in 1998 as compared to 1997. SBA
loans increased 53.4% in 1998 as compared to 1997 and consumer loans, including
automobile loans, increased 51.4 % in 1998 as compared to 1997. The growth was
the result of the Bank's ongoing efforts to market its products and increase and
diversify its loan portfolio.
The Bank carries all loans at face amount, less payments collected, net
of deferred loan origination fees and the allowance for possible loan losses.
Interest on all loans is accrued daily on a simple interest basis. Once a loan
is placed on non-accrual status, accrual of interest is discontinued and
previously accrued interest is reversed. Loans are placed on a non-accrual basis
when principal and interest on a loan is past due 90 days or more, unless a loan
is both well-secured and in process of collection.
The rates of interest charged on variable rate loans are set at
specified increments in relation to the Bank's prime lending rate and
accordingly, vary as the Bank's prime lending rate varies. Approximately 75.5%
of the Bank's net loans were variable rate loans at December 31, 1999.
With certain exceptions, the Bank is permitted, under applicable law, to
make unsecured loans to individual borrowers in aggregate amounts of up to 15%
of the sum of the Bank's total capital and the allowance for loan losses (as
defined for regulatory purposes). As of December 31, 1999, these lending limits
for the Bank were
23
approximately $4.6 million for unsecured loans. For the purpose of lending
limits, a secured loan is defined as a loan secured by readily marketable
collateral having a current market value of at least 100% of the amount of the
loan or extension of credit at all times. In addition to unsecured loans, the
Bank is permitted to make loans secured by such collaterals in an additional
amount up to 10% of the Bank's total capital and the allowance for loan losses.
The following table shows the composition of the Bank's loan portfolio
by type of loan on the dates indicated:
[Enlarge/Download Table]
DECEMBER 31,
-------------------------------------------------------------------------------------
1999* 1998* 1997
------------------------ ------------------------- -------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
---------- ---------- ---------- ---------- ---------- ----------
LOAN PORTFOLIO COMPOSITION:
Commercial Loans ................... $ 108,687 45.4% $ 84,166 50.2% $ 68,199 62.0%
Real Estate and Construction Loans . 95,115 39.8% 52,823 31.5% 21,136 19.2%
Consumer Loans ..................... 35,295 14.8% 30,651 18.3% 20,635 18.8%
---------- ---------- ---------- ---------- ---------- ----------
Total loans outstanding ......... 239,097 100.0% 167,640 100.0% 109,970 100.0%
Deferred loan fees, net of costs ... (86) 32 45
Less: Allowance for loan losses .... (3,644) (2,961) (2,138)
NET LOANS RECEIVABLE ............... $ 235,367 $ 164,711 $ 107,877
---------------------
* Includes loans held for sale in commerical loans, in amount of $168,250 and
$415,138 in 1999 and 1998, respectively.
Commercial loans are made for the purposes of providing working capital,
financing the purchase of inventory, especially for importers and exporters, or
equipment and for other business purposes. Short term business loans (within one
year), referred to as Business Line of Credits, are generally used to finance
current transactions and typically provide for periodic interest payments, with
principal being payable at maturity. Term loans (1 to 25 years) normally provide
for monthly payments of both principal and interest. The credit-worthiness of
the borrower is reviewed on a periodic basis, and most loans are collateralized
by inventory, equipment and/or real estate. The Bank's real estate loans consist
primarily of loans secured by deeds of trust on commercial property and are
normally written for a short duration. It is the Bank's policy to restrict real
estate loans to 80% of the Bank's appraised value of the property. The Bank
offers both fixed and floating rate loans. While maturities on such loans are
generally restricted to five years (on an amortization ranging from 10 to 15
years with a balloon payment due at maturity), the Bank has occasionally made
longer term (up to 25 years) fully amortizing loans.
The Bank's SBA loans are typically made for the purpose of providing
working capital, financing the purchase of equipment or inventory, financing the
purchase of a business, debt refinancing, or financing the purchase or
construction of owner occupied commercial property. The SBA loans are typically
term loans with maturities ranging from 7 to 25 years. These loans normally
provide for floating interest rates, with monthly payments of both principal and
interest. The Bank's SBA lending represents an important portion of its loan
portfolio because of its ability to sell the guaranteed portion in the secondary
market at a premium, while earning servicing fees on the sold portion over the
remaining life of the loan. Thus, in addition to the yield earned on the portion
of the SBA loans retained by the Bank, the Bank recognizes gains on the sale and
revenue for the loan services provided for the loans sold into the secondary
market.
The Bank extends lines of credit to business customers usually on an
annual review basis. The Bank does not normally make loan commitments in
material amounts for periods in excess of one year. The Bank's undisbursed
commercial loan commitments at December 31, 1999 and 1998 were $56.3 million and
$47.7 million respectively. Most consumer loans consist mostly of automobile
loans, and savings-secured loans. These loans are reviewed on an annual basis.
The following table shows the Bank's loan commitments and letters of
credit outstanding at the dates indicated (dollars in thousands):
24
[Download Table]
DECEMBER 31,
-----------------------------------
1999 1998 1997
------- ------- -------
Loan commitments ..................... $56,278 $47,707 $31,152
Standby letters of credit ............ 2,851 2,948 2,787
Commercial letters of credit ......... 17,554 10,689 8,921
Interest income on all loans is recognized under the accrual method of
accounting. Accrual accounting takes the daily interest earned on the daily
outstanding loan balance and records it as interest revenue regardless of the
individual loan payment dates. The calculation is based on the simple interest
method where the unpaid loan balance is multiplied by the number of outstanding
days and then multiplied by the applicable interest rate per day. The Bank
generally does not record as revenue the potential interest on loans which are
classified as probable losses. The gross interest income that would have been
recorded at December 31, 1999 if the non-accrual loans had been current in
accordance with their original terms and had been outstanding throughout the
period or since origination is $465,000. The amount of interest included on
non-accrual loans in 1999 was $88,000.
The non-performing loans decreased $800,000 or 53.3% to $1,523,000 at
December 31, 1999, compared to $2,311,000 at December 31, 1998. These loans
increased $1,766,000 or 324.0% during 1998 from $545,000 at December 31, 1997.
Much of the increased non-performing loans during 1998 were charged off during
1999, resulting in $1.9 million or 189.6 increase in charge-offs during 1999.
[Download Table]
DECEMBER 31,
--------------------------------
1999 1998 1997
------ ------ ------
Non-accrual loans ................................ $1,523 $2,310 $ 422
Loans past due 90 days or more, still accruing ... 0 0 103
Restructured loans ............................... 0 0 1,023
Total non-performing loans ....................... $1,523 $2,310 $ 545
MATURITY OF LOANS AND SENSITIVITY OF LOANS TO CHANGES IN INTEREST RATES
The following table sets forth by category of loan (including fixed and
variable rate loans) the amounts of loans outstanding as of December 31, 1999
which are, based on remaining scheduled repayment of principal, due in less than
one year, due in one to five years, or due in more than five years (dollars in
thousands). Loan maturities are based on contractual maturities.
[Enlarge/Download Table]
AT DECEMBER 31, 1999
-----------------------------------------------------------
LOANS MATURING IN
-----------------------------------------------------------
OVER ONE
YEAR BUT
ONE YEAR LESS THAN OVER FIVE
OR LESS FIVE YEARS YEARS TOTAL
-------- ---------- --------- --------
Commercial loans ........................... $ 60,758 $ 31,971 $ 7,683 $100,412
Real Estate and Construction loans ......... 4,669 44,091 54,551 103,311
Consumer loans ............................. 9,058 26,164 73 35,295
Total .................................. 74,485 102,226 62,307 239,018
Loans with fixed interest rates ............ 11,062 40,762 9,052 60,876
Loans with variable interest rates ......... 178,142 0 0 178,142
Total .................................. 189,204 40,762 9,952 239,018
25
CONCENTRATIONS
Loan concentrations are considered to exist when there are significant
amounts of loans to a multiple number of borrowers engaged in similar activities
which would cause them to be similarly impacted by economic or other conditions.
The following table describes the industry concentrations in the Bank's loan
portfolio which exceed 10% of the Bank's total loans as of the dates indicated
(dollars in thousands):
[Enlarge/Download Table]
AT DECEMBER 31
-------------------------------------------------------------------------------------
1999 1998 1997
------------------------ -------------------------- --------------------------
AMOUNT % OF PORTFOLIO AMOUNT % OF PORTFOLIO AMOUNT % OF PORTFOLIO
------ -------------- ------- -------------- ------- --------------
Manufacturing ...... $ 30,072 12.8% $31,383 19.1% 25,608 23.7%
Wholesale Trade .... 71,283 30.3% 46,517 28.2 34,648 32.1%
Retail Trade ....... 35,878 15.2% 30,345 18.4% 19,276 17.7%
Services ........... 25,702 10.9% 23,745 14.4% 13,208 12.2%
Total ....... $162,935 92,740
OTHER REAL ESTATE OWNED ("OREO")
Nara Bank owned other real estate, taken through foreclosure, in the
aggregate amount of approximately $57,000 and approximately $10,000 at December
31, 1999 and 1998, respectively. Nara Bank reserved $13,000 at December 31, 1999
as a valuation allowance, while there was no valuation allowance at December 31,
1998. Nara Bank incurred expenses of $11,000 and $17,000 and earned income of
$5,400 and $906 from these properties in 1998 and 1999, respectively. The
following table summarizes Nara Bank's OREO at the dates indicated (dollars in
thousands):
[Download Table]
DECEMBER 31,
------------------------------------
1999 1998 1997
---- ---- ----
Other real estate owned ................... $ 57 $10 $ 10
Valuation allowance ....................... (16) 0 (10)
Net OREO ............................. $ 39 $10 0
SUMMARY OF LOAN LOSS EXPERIENCE
The risk of nonpayment on loans is inherent in all commercial banking
operations. The Bank employs a concept of total quality loan management in order
to minimize its credit risk. For new loans, the Bank thoroughly analyzes each
loan application and a majority of those loans are approved by the Management
Loan Committee, which is comprised of five officers including the Chief
Executive Officer, Chief Credit Administrator and Chief Financial Officer. For
existing loans, the Bank maintains a systematic loan review program which
includes a quarterly loan review by the internal loan review officer and an
annual loan review by external loan consultants. Based on the reviews, loans are
graded for their overall quality which is measured based on the type of the loan
being made, the credit-worthiness or history of the borrower over the term of
the loan, security for the loan and cash flow of the borrower. The Bank
carefully reviews loans that management has determined require further
supervision. These loans are periodically reviewed by Loan Committee.
When principal or interest on a loan is past due 90 days or more, a loan
is normally placed on non-accrual status unless it is considered to be both
well-secured and in the process of collection. Further, a loan is considered to
be a loss in whole or in part when (1) its loss exposure beyond any collateral
value is apparent, (2) servicing of the unsecured portion has been discontinued
or (3) collection is not anticipated due to the borrower's financial condition
and general economic conditions in the borrower's industry. Any loan, or portion
of a loan, judged by management to be uncollectible is charged against the
allowance for loan losses while any recoveries are credited to such allowance.
The Bank's allowance for loan losses is established to provide for loan
losses which can be reasonably anticipated. The allowance for loan losses is
established through charges to operating expenses in the form of provisions for
loan losses. Actual loan losses or recoveries are charged or credited,
respectively, directly to the allowance for loan losses. The amount of the
allowance is determined by management and reported to the Board
26
quarterly. The results of both internal and external loan reviews are used to
determine the loan loss reserve. The Bank's current loan review system takes
into consideration such factors as the current financial condition of the
borrower, the value of security, future economic conditions and their impacts on
various industries. The Bank's own historical loan loss experience is factored
into a detailed loss migration analysis method, which determines loss factors to
be used in calculating the allowance for loan losses.
The allowance for loan losses increased $683,000 or 23.1% to $3.6
million at year ended 1999, from $3.0 million at year ended 1998. The allowance
increased $823,000 or 38.5% in 1998 from $2.1 million in 1997. Specific reserves
for impaired loans in accordance with SFAS No. 114, were $1.0 million at
year-end 1999, compared to $1.4 million at year-end 1998 and $558,000 at
year-end 1997. Management and the Board of Directors review the adequacy of the
allowance for loan losses at least quarterly. Based upon these evaluations and
internal and external reviews of the overall qualify of the Bank's loan
portfolio, management and the Board of Directors believe that the allowance for
loan losses was adequate as of December 31, 1999, to absorb estimated losses
associated with the loan portfolio. However, no assurances can be given as to
whether the Bank will experience further losses in excess of the allowance,
which may require additional provisions for loan loss reserves. If there are
further losses, they may have a negative impact on the Bank's earnings.
The allowance as a percentage of loans outstanding at December 31, 1999,
1998 and 1997 were 1.53%, 1.77% and 1.94%, respectively. Management believes
that the allowance for loan losses is adequate to cover all reasonably
anticipated losses in the loan portfolio. However, no assurance can be given
that future economic condition will not adversely affect the Bank's service
areas or that other circumstances, including circumstances beyond the Bank's
control, will not result in increased losses in the Bank's loan portfolio, which
could possibly exceed the total allowance for loan losses.
The following table shows the provision made for loan losses, the amount
of loans charged off, the recoveries on loans previously charged off together
with the balance in the allowance for possible loan losses at the beginning and
end of each period, the amount of average and total loans outstanding, and other
pertinent ratios as of the dates and for the periods indicated (dollars in
thousands):
[Enlarge/Download Table]
DECEMBER 31,
---------------------------------------
1999 1998 1997
------- ------- ------
LOANS:
Average total loans ............................................... 208,895 138,914 94,841
Total loans at end of period ...................................... 238,931 167,672 110,015
ALLOWANCE:
Balance - beginning of period ..................................... $ 2,961 $ 2,138 $ 1,802
Loans charged off:
Commercial ...................................................... 2,785 755 576
Consumer ........................................................ 154 260 327
Real Estate and Construction .................................... 0 0 85
Total loans charged off ..................................... 2,939 1,015 988
Less: recoveries ................................................ 227 123 194
Net loans charged off ........................................... 2,712 892 794
Provision for loan losses ....................................... 3,395 1,430 1,130
Allowance made with business acquisition ........................ 285
Balance - end of period ......................................... $ 3,644 $ 2,961 $ 2,138
RATIOS:
Net loan charge-offs to average total loans ....................... 1.30% 0.64% 0.84%
Net loan charge-offs to total loans at end of period .............. 1.14% 0.53% 0.72%
Allowance for loan losses to average total loans .................. 1.74% 2.13% 2.25%
Allowance for loan losses to total loans at end of period ......... 1.53% 1.77% 1.94%
Net loan charge-offs to beginning allowance ....................... 91.59% 41.72% 44.06%
Net loan charge-offs to provision for loan losses ................. 79.88% 62.38% 70.27%
ALLOWANCE FOR LOAN AND LEASE LOSSES AND METHODOLOGY
The Bank maintains an allowance for loan and lease losses (Allowance) in
an amount believed to be adequate to absorb the estimated known and inherent
losses identified in the loan portfolio for the next twelve months. The Bank's
methodology for determining the adequacy of the Allowance is based on a
consistent and
27
comprehensive analysis that is performed quarterly by management. By assessing
the probable estimated losses inherent in the loan portfolio on a quarterly
basis, the Bank is able to adjust specific and inherent loss estimates based
upon the most recent information that has become available.
The Bank uses four different methodologies to determine the adequacy of
the Allowance: (1) the Migration Analysis; (2) the Adjusted Migration Analysis;
(3) the Reasonableness Test; and (4) the Specific Allocation method.
The Migration Analysis is a formula method based on the Bank's
historical net charge-off experience for each pool of loans and undisbursed
commitments graded Pass (less cash secured loans), Special Mention, Substandard,
and Doubtful. The Bank's actual, historical net loss experience for twelve
quarters is used in the formula. Changes in risk grades of both performing and
nonperforming loans, charge-offs for the current period, and loan recoveries
affect the amount of Allowance required under this method. The twelve-quarter
formula used is designed to be self-correcting by taking into account the Bank's
recent loss experience.
In the Adjusted Migration Analysis, management makes adjustments to the
required Allowance under the Migration Analysis, for various judgmental factors.
Adjustments are made in a consistent manner, and result in additions to or
subtractions from the required Allowance under the Migration Analysis. This
method permits adjustments to the reserve factors used in the computation of the
Migration Analysis, in the event in management's judgment, significant factors,
which may affect the collectability of the loan portfolio as of the evaluation
date, are not reflected in the migration reserve factors. The following
judgmental factors are considered:
- The Bank's historical loss experience.
- Changes in lending policies and procedures, including under-writing
standards and collection, charge-off, and recovery practices.
- Changes in national and local economic and business conditions and
developments, including the condition of various market segments.
- Changes in the nature and volume of the loan portfolio.
- Changes in the experience, ability, and depth of lending management and
staff.
- Changes in the trend of the volume and severity of past due and
classified loans; and trends in the volume of nonaccrual loans and
troubled debt restructurings.
- Changes in the quality of the Bank's loan review system and the degree
of oversight by the Directors.
- The existence and effect of any concentrations of credit, and changes in
the level of such concentrations.
- The effect of external factors such as competition and legal and
regulatory requirements on the level of estimated losses in the Bank's
loan portfolio.
The Reasonableness Test is based on a national historical loss
experience for each adversely loan graded Substandard, Doubtful, and Loss. The
reserve factors applied under this method are: 15.0% for loans graded
Substandard; 50.0% for loans graded Doubtful; and 100.0% for loans graded Loss.
This method in not intended to substitute or override the Bank's other
methodologies, but rather is used for comparative purposes.
Under the Specific Allocation method, management establishes specific
allowances for loans where management has identified significant conditions or
circumstances related to a credit that are believed to indicate the probability
that a loss may be incurred. The specific allowance amount is determined by a
method prescribed by the Statement of Financial Accounting Standards (SFAS) No.
114, "Accounting by Creditors for Impairment of a Loan." The Bank's actual
historical repayment experience and the borrower's cash flow, together with an
individual analysis of the collateral held on a loan, is taken into account in
determining the allocated portion of the
28
required Allowance under this method. As estimations and assumptions change,
based on the most recent information available for a credit, the amount of the
required specific allowance for a credit will increase or decrease. The
migration reserve factor is used to determine the unallocated portion of the
required Allowance under this method. By analyzing the identified credits on a
quarterly basis, the Bank is able to adjust a specific allowance based upon the
most recent information that has become available.
PROVISION FOR LOAN LOSSES, NET CHARGE-OFFS AND ALLOWANCE FOR LOAN LOSSES
The Bank's provision for loan losses is determined by management's
assessment of the overall quality of the loan portfolio, and economic
conditions. The Southern California economy has improved significantly in recent
years. Real estate values in the Los Angeles area affected by a severe recession
in prior years, have shown noticeable increase. The majority of the Bank's real
estate loans are collateralized with a first deed of trust on commercial
property, accordingly, another economic downturn could adversely affect the
collateral values. The commercial loan portfolio remains widely diversified over
many industries such as manufacturers and wholesalers of apparel and textile
goods, other durable goods, electronics, food services, and many other kinds of
retail and service industries.
The provision for loan losses increased $2.0 million or 137.4% to $3.4
million in 1999, from $1.4 million in 1998, mainly due to several larger loans
that were downgraded or charged off during the year, and partly due to the
increase in the Bank's loan volume. The provision also was increased $300,000 or
26.5% in 1998 from $1.1 million in 1997. Nonaccrual loans decreased to $1.5
million at year-end 1999 from $2.3 million at year-end 1998. Over $2.9 million
of loans were charged off during the year that were on nonaccrual status.
Nonaccrual loans increased at year-end 1998 to $1.4 million from $442,000 at
year-end 1997. Net loan charge-offs increased $1.8 million or 204.0% in 1999
from 1998 and increased $98,000 or 12.4% to $892,000 in 1998 from $794,000 for
1997. Loan charge-offs increased $1.9 million or 189.6% and the recoveries
increased $104,000 or 84.7% in 1999.
INCOME TAXES
The Bank's effective tax rate for 1999 was 29%, compared to 35% in 1998
and 29% in 1997. During 1999, the Bank recognized net income tax expenses of
$1,657,000 compared to $1,730,000 for 1998. At December 31, 1999, the Bank had
federal and California net operating loss carryforwards of approximately
$829,000 and $787,000, respectively, which will continue through 2009. Due to
the ownership change that occurred on July 15, 1994, the annual limitation that
can be utilized to offset future taxable income approximates $83,000. The Bank
also has Los Angeles Enterprise Zone hiring and sales and use tax credits of
approximately $135,000. Which will expire in the years 2007 through 2012.
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
The objective of the Bank's liquidity management is to have funds
available to pay anticipated deposit withdrawals and any other maturing
financial obligations promptly and fully in accordance with their terms.
Liquidity management involves the Bank's ability to convert assets into cash or
cash equivalents without incurring significant loss, and to raise cash or
maintain funds without incurring excessive additional cost. The Bank maintains a
portion of its funds in interest-bearing cash deposits in other banks, funds
loaned to other banks overnight (Federal funds sold), and investment securities
available for sale. At December 31, 1999, the Bank's liquidity level was 22.2%
totaling $79.8 million reflecting a $4.2 million increase compared to a
liquidity level of $75.6 million at 1998 year-end. The Bank's liquid assets
included cash and cash equivalents, federal funds sold, interest-bearing
deposits in other banks with maturities of one year or less, and
available-for-sale investment securities. The Bank has the ability to borrow
from correspondent banks up to $8,000,000 and from the Federal Reserve Bank's
discount window up to an amount equal to 90% of pledged assets, which totaled
$10,000,000 as of December 31, 1998. The Bank's liquid assets are monitored by
management on a daily basis. The Bank's asset and liability management function
strives to maintain an appropriate gap between interest rate sensitive assets
and interest rate sensitive liabilities in order to control the effect of
interest rate movements on net interest income at an acceptable level.
29
ASSET AND LIABILITY MANAGEMENT
For deposits, the Bank's primary source of funds, the Bank maintains its
deposit policy under which the Bank endeavors to match its interest bearing
liabilities to fund interest-earning assets as closely as possible. The Bank
shall also cover all volatile funds with liquid assets, as a method to ensure
adequate liquidity. Thus, the Bank analyzes its deposits' maturity and interest
rates in order to monitor and control the cost of funds and review the stability
of its supply of funds.
At times when the Bank has more funds than the amount it needs for its
reserve requirements or short-term liquidity needs, it sells federal funds to
other financial institutions. The Bank derived $2.1 million in income from sales
of Federal Funds during the year ended December 31, 1999, and $2.0 million and
$1.2 million in income from such sales during the year ended December 31, 1998
and 1997, respectively.
On the other hand, when the Bank has less funds than its needed amount,
the Bank is allowed to borrow funds from both its corresponding banks and the
Federal Reserve Bank (FRB). The maximum allowed amount from the Bank's
correspondent banks is $8 million on overnight basis. The maximum amount from
the FRB discount window is 90% of the security value pledged with the FRB, which
in amount of $10 million.
The Bank's deposits consist of demand deposits, savings deposits, money
market, super-NOW, and time deposits with various maturities. At December 31,
1999, the Bank had $121.4 million in total demand deposit and NOW accounts; and
$198.5 million in total time, savings, and money market accounts for individuals
and businesses. A total of $76.6 million of the deposits was in the form of
certificates of deposit in denominations of $100,000 or more as of December 31,
1999. Of the Bank's deposits, 62.0% were time and savings deposits (including
money market deposit accounts) and 38.0% were demand deposits and other
transaction account (including NOW accounts).
Total deposits increased $70.6 million, or 28.3% to $319.9 million at
December 31, 1999, from $249.3 million at December 31, 1998. Total deposits
increased $90.7 million or 57.2% from December 31, 1997 to December 31, 1998.
Average total deposits increased $91.9 million or 48.8% in 1999 as compared with
$188.4 million in 1998. Non-interest bearing deposits increased $25.7 million or
28.6% and interest-bearing deposits increased $44.9 million or 28.1% at December
31, 1999 from December 31, 1998 levels. Non-interest bearing deposits increased
$35.8 million or 66.2% and interest-bearing deposits increased $54.4 million or
52.5% at December 31, 1998 from December 31, 1997.
The large portion of these increases resulted from new business from the
branches opened during the 1998, especially from Flushing New York, and other
portions resulted from internal growth. The Flushing New York branch's deposits
in 1999 increased over 22.7% from the previous year when it was acquired.
Noninterest-bearing deposits accounted for 36.1% of total deposits at 1999
year-end, which is the same level 1998 yearend. Time deposits were 40.2% of
total deposits in 1999 and they represented the single largest source of funds
for the Bank in 1999. Time deposits of $100,000 or more increased 41.9% and
other time deposits increased 17.0% in 1999. Savings deposits increased 77.7% in
1999 as compared to 1998, but interest-bearing deposits decreased 11.7% during
the year. This decrease was due to one large money market account that was
transferred out at 1999 year-end. The balance of the particular account had
fluctuated through the year.
Increases in deposits from 1997 to 1998 were primarily the result of
internal growth and expansion and partially the results of new business from the
branches opened during the year. Noninterest bearing deposits increased $35.8
million or 66.2% from December 31, 1997 to December 31, 1998 and
interest-bearing deposits increased $54.8 million or 52.5% from December 31,
1997 to December 31, 1998. Time deposits of $100,000 or more increased 40.0% and
other time deposits increased 57.2% in 1998. Savings and interest-bearing
deposits increased 120.1% and 60.7% respectively during the year.
While the Bank's deposits vary with local and national economic
conditions, management does not believe that the deposits are seasonal in
nature. The following table shows the maturity schedule of certificates of
deposit of the Bank for $100,000 or more, for the years indicated (dollars in
thousands).
30
[Enlarge/Download Table]
DECEMBER 31,
---------------------------------------------------------------------------------
1999 1998 1997
----------------------- ----------------------- ------------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
-------- ---------- -------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
Three months or less ........................ $ 63,452 49.4% $ 44,191 44.5% $ 19,116 49.6%
Over three months through six months ........ 25,322 19.7% 22,556 22.7% 9,967 25.8%
Over six months through twelve months ....... 36,598 28.5% 28,747 29.0% 9,057 23.5%
Over twelve months .......................... 3,057 2.4% 3,796 3.8% 441 1.14%
-------- -------- --------
Total time certificate of deposits ....... $128,429 100.0% $ 99,290 100.0% $ 38,581 100.0%
======== ======== ========
The following table sets forth information for the periods indicated
regarding the average balances of the Bank's deposits by category.
[Enlarge/Download Table]
DECEMBER 31,
-----------------------------------------------------------------------------------------
1999 1998 1997
--------------------------- -------------------------- --------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
Demand, noninterest bearing .... $ 102,499 36.6% $ 64,193 34.1% $ 44,967 33.9%
Demand, interest bearing ....... 4,851 1.7% 27,022 1.5% 2,238 1.7%
Savings ........................ 65,703 23.48% 13,748 20.1% 28,646 21.6%
Time certificates of deposit ... 100.0% 44.2% 100.0%
107,229 83,403 56,812
----------- ----------- -----------
Total Deposits ............ $ 280,283 $ 188,366 $ 132,663
=========== =========== ===========
CAPITAL RESOURCES
In order to ensure adequate levels of capital, the Bank conducts ongoing
assessment of projected sources and uses of capital in conjunction with
projected increases in assets and level of risk. Total shareholders' equity was
$26.7 million at December 31, 1999. This represented an increase of $3.9 million
or 17.2% over total shareholders' equity of $22.8 million at December 31, 1998.
For 1998, total shareholders' equity increased $3.2 million or 16.2% over total
shareholders' equity of $19.6 million at December 31, 1997. Tier 1 capital,
shareholders' equity less intangible assets, was $25.1 million at December 31,
1999. This represented an increase of $4.3 million or 20.5% over total Tier 1
capital of $20.8 million at December 31, 1998. For 1998, Tier 1 capital
increased $1.2 million, or 6.2% over Tier 1 capital of $19.6 million at December
31, 1997.
SUBORDINATED NOTES
On September 31, 1999, the Bank issued five-year subordinated capital
notes in the aggregate amount of $4.3 million with a stated interest rate of 9
percent, maturing on September 31, 2004. Interest on the notes is payable
quarterly and no scheduled payments of principal are due prior to maturity. The
Bank may redeem the notes prior to their maturity as of or after September 30,
2002. The notes qualify as Tier 2 risk-based capital under the Office of the
Comptroller of the Currency guidelines for assessing regulatory capital. For the
total risk-based capital ratio, the amount of notes that qualify as capital is
reduced as those notes approach maturity. At December 31, 1999, $3.4 million,
which represents 80% of the total outstanding amount of the notes, qualified as
risk-based capital.
LIQUIDITY RISK
Liquidity risk is the risk to earnings or capital resulting from the
Bank's inability to meet its obligations when they come due without incurring
unacceptable losses. It includes the ability to manage unplanned decreases or
changes in funding sources and to recognize or address changes in market
conditions that affect the Bank's ability to liquidate assets quickly and with
minimum loss of value. Factors considered in liquidity risk management are
stability of the deposit base; marketability, maturity, and pledging of
investments; and the demand for credit.
In general, liquidity risk is managed daily by controlling the level of
federal funds and the use of funds provided by the cash flow from the investment
portfolio. To meet unexpected demands, lines of credit are maintained with
correspondent banks, the Federal Home Loan Bank and the Federal Reserve Bank.
The sale of bonds maturing in the near future can also serve as a contingent
source of funds. Increases in deposit rates are considered a last resort as a
means of raising funds to increase liquidity.
31
For the Bank, sources of funds normally include principal payments on
loans and investments, other borrowed funds, and growth in deposits. Uses of
funds include withdrawal of deposits, interest paid on deposits, increased loan
balances, purchases, and other operating expenses.
Net cash provided by operating activities totaled $8.9 million for 1999,
$5.7 million for 1998, and $2.4 million for 1997. The increase for 1999 compared
to 1998 and 1997 was primarily the result of the increase in net income during
each year.
Cash used for investing activities totaled $96.2 million for 1999,
compared to $41.3 million for 1998, and $38.3 million for 1997. The funds used
for investing activities primarily represented increases in investments and
loans for each year reported. Funds obtained from investing activities for each
year were obtained primarily from the sale and maturity of investment securities
and from the sale of other real estate owned.
Funds provided from financing activities totaled $75.0 million for 1999,
compared to $69.3 million for 1998, and $55.5 million for 1997. For 1999, cash
flows from financing activities resulted from increased short-term borrowing and
to a lesser extent from noninterest-bearing deposits, money market, savings
deposits, time deposits. For 1998, cash flows from financing activities resulted
from increased noninterest-bearing demand deposits, and short-term borrowings.
At December 31, 1999, cash and cash equivalents totaled $62.7 million.
This represented a decrease of $12.3 million, or 16.4%, from a total of $75.0
million at December 31, 1998.
Since the primary sources and uses of funds for the Bank are loans and
deposits, the relationship between gross loans and total deposits provides a
useful measure of the Bank's liquidity. Typically, the closer the ratio of loans
to deposits is to 100%, the more the Bank is on its loan portfolio to provide
for short-term liquidity needs. Because repayment of loans tends to be less
predictable than the maturity of investments and other liquid resources, the
higher the loan to deposit ratio, the less liquid are the Bank's assets. For
1999, the Bank's loan to deposit ratio averaged 74.5%, compared to an average
ratio of 73.7% for 1998, and a ratio of 71.5% for 1997.
INTEREST RATE RISK
During periods of changing interest rates, the ability to reprice
interest-earning assets and interest-bearing liabilities can influence net
interest income, the net interest margin, and consequently, the Bank's earnings.
Interest rate risk is managed by attempting to control the spread between rates
earned on interest-earning assets and the rates paid on interest-bearing
liabilities within the constraints imposed by market competition in the Bank's
service area. Short-term repricing risk is minimized by controlling the level of
floating rate loans and maintaining a downward sloping ladder of bond payments
and maturities. Basis risk is managed by the timing and magnitude of changes to
interest-bearing deposit rates. Yield curve risk is reduced by keeping the
duration of the loan and bond portfolios relatively short. Options risk in the
bond portfolio is monitored monthly and actions are recommended when
appropriate.
The Bank's management monitors the interest rate "sensitivity" risk to
earnings from potential changes in interest rates using various methods,
including a maturity/repricing gap analysis. This analysis measures, at specific
time intervals, the differences between interest-earning assets and
interest-bearing liabilities for which repricing opportunities will occur. A
positive difference, or gap, indicates that earning assets will reprice faster
than interest-bearing liabilities. This will generally produce a greater net
interest margin during periods of rising interest rates, and a lower net
interest margin during periods of declining interest rates. Conversely, a
negative gap will generally produce a lower net interest margin during periods
of rising interest rates and a greater net interest margin during periods of
decreasing interest rates.
The Bank's balance sheet is inherently "asset-sensitive". which means
that assets generally reprice more often than liabilities. Since an
asset-sensitive balance sheet tends to reduce net interest income when interest
rates decline and to increase net interest income when interest rates rise, the
securities portfolio is used to manage this interest rate risk.
32
GAP POSITION
Nara Bank, N.A.
As of December 31, 1999
(Amounts in thousand except ratios)
[Enlarge/Download Table]
0-90 Days 91-180 days 181-365 days 1-3 years 3-5 years Over 5 Years
Amount Amount Amount Amount Amount Amount Total
--------- ----------- ------------ --------- --------- ------------- -------
Investments:
Fed funds sold 42,500 N/A N/A N/A N/A N/A 42,500
Due from Time/Domestic 855 963 783 678 0 0 3,279
Investment securities 12,169 3,000 7,051 2,311 5,016 3,976 33,523
FRB stock 667 667
-------- ------- ------- ------ ------ ------- -------
Total Investments 55,524 3,963 7,834 2,989 5,016 4,643 79,969
Loans:
Term fed fund sold 0 0 0 0 0 0 0
Commercial variable
loans 169,971 2,062 545 0 0 0 172,578
Commercial fixed loans 7,347 1,594 108 4,429 5,888 9,052 28,417
Equipment Leasing 6 43 93 2,360 2,626 0 5,128
Consumer variable
loans 5,564 0 0 0 0 0 5,564
Consumer fixed loans 199 559 1,113 9,305 16,154 0 27,330
-------- ------- ------- ------ ------ ------- -------
Total Loans 183,087 4,258 1,859 16,094 24,668 9,052 239,018
Unearned loan fee (86)
Allowance for loan
losses (3,644)
NET LOAN 235,287
-------- ------- ------- ------ ------ ------- -------
RATE SENSITIVE ASSETS 238,611 8,221 9,694 19,082 29,684 13,694 319,986
TCD $100,000 or more 40,918 14,179 20,118 1,202 108 0 76,525
TCD under $100,000 22,374 11,143 16,480 1,747 0 0 51,744
Money Market account 31,518 0 0 0 0 0 31,518
Super NOW 5,770 0 0 0 0 0 5,770
Savings account 32,057 573 1,284 2,542 541 1,541 38,538
Subordinated Debenture 4,300 4,300
-------- ------- ------- ------ ------ ------- -------
RATE SENSITIVE 132,637 25,896 37,882 5,491 4,949 1,541 208,395
LIABILITIES
Net Gap Position 105,973 (17,675) (28,188) 13,591 24,735 12,154
Cumulative Gap Position 105,973 88,299 60,111 73,702 98,438 110,591
Periodic Gap
GAP as Percent Assents 29.5% -4.9% -7.9% 3.8% 6.9% 3.4%
Cumulative Gap 29.5% 24.6% 16.7% 20.5% 27.5% 30.8%
GAP as Percent Assets
TOTAL ASSETS 358,898
33
The interest rates paid on deposit accounts do not always move in unison
with the rates charged on loans. In addition, the magnitude of changes in the
rates charged on loans is not always proportionate to the magnitude of changes
in the rate paid for deposits. Consequently, changes in interest rates do not
necessarily result in an increase or decrease in the net interest margin solely
as a result of the differences between repricing opportunities of earning assets
or interest-bearing liabilities. The fact that the Bank reported a negative gap
at December 31, 1999 does not necessarily indicate that, if interest rates
decreased, net interest income would increase, or if interest rates increased,
net interest income would decrease.
The Bank had no securities backed by mortgages at December 31, 1999.
The table below provides the actual balances at of December 31, 1999 of
interest-earning assets and interest-bearing liabilities, including the average
rate earned or paid for 1999, the projected contractual maturities over the next
five years, and the estimated fair value of each category determined using
available market information and appropriate valuation methodologies.
(amounts in thousands)
[Enlarge/Download Table]
One to Three to
Balance Less than Three Five Five years Estimated
December 31, Rate One Year Years Years and beyond Fair Value
------------ -------- --------- -------- --------- ---------- ----------
1999
Interest-earning assets $ 42,500 5.5% $ 42,500 $ 0 $ 0 $ 0 $ 0
Time Certificates of
Deposit at institution
institution 3,279 6.1% 1,073 773 957 475 0
Investment securities held
to maturity 17,284 6.8% 0 3,000 5,488 8,796 16,141
Investment securities
available for sale 16,239 7.1% 0 5,311 3,459 7,469 16,047
-------- -------- ------- ------- -------
Loans and lease finance
receivables, net 239,018 9.8% 0 5,311 3,459 7,469 16,047
-------- -------- -------- ------- ------- -------
Total interest-earning
assets $318,320 9.1% $232,777 $ 25,178 $ 34,573 $ 25,792 $32,188
======== ======== ======== ======= ======= =======
Interest-bearing
liabilities
Interest-bearing deposits $204,246 4.5% $196,565 $ 5,491 $ 649 $ 1,541 $ 0
Other borrowings 0 0 0 0 0 0 0
Short-term subordinated
notes 4,300 9.0% 0 0 0 0 0
-------- -------- -------- ------- ------- -------
Total interest-bearing
liabilities $208,546 8.8% $196,565 $ 5,491 $ 4,949 $ 1,541 $ 0
======== ======== ======== ======= ======= =======
YEAR 2000 COMPLIANCE
The Year 2000 issue was the result of computer programs being written
using two, rather than four, digits to define the applicable year. Programs that
have time- or date-sensitive software may recognize a date using "00" as the
year 1900 instead of the year 2000. This error, had occurred, could have
resulted in major electronic and computer systems failure or miscalculations.
The Bank has experienced no computer system or other problems as of the result
of the year 2000. If a problem were to be discovered in the year 2000, that
impacts the Bank's core systems, the Bank would be required to perform many
business functions manually until such time as the problem could be corrected by
the Bank or the appropriate third-party vendor. The Bank has provided for such
manual processing in its year 2000 contingency plans, but does not expect that
the need will arise for such actions.
ITEM 8 FINANCIAL STATEMENTS
The Bank's Financial Statements, together with the report thereon of
Deloitte & Touche LLP dated February 10, 2000, begin at page F-1 of this Report
and contain the following:
Independent Auditor's Report
34
Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998, and 1997
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1999, 1998, and 1997
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998, and 1997
Notes to Consolidated Financial Statements
See "Item 13 Exhibits and Reports on Form 8-K" below for financial
statements filed as a part of this Report.
35
PART III
ITEM 9 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT: COMPLIANCE WITH
SECTION 16 (a) OF THE EXCHANGE ACT
Section 16(a) of the Securities and Exchange Act of 1934, as amended
(the "1934 Act"), requires the Bank's officers and directors, and persons who
own more than 10% of the Bank's common stock, to file reports of ownership and
changes in ownership with the Office of the Comptroller of the Currency and the
NASDAQ Stock Market. Officers, directors and greater than 10% stockholders are
required by regulation to furnish the Bank with copies of all Section 16(a)
forms they file. The Bank knows of no person who owns 10% or more of the Bank's
common stock. Based solely on review of the copies of such forms furnished to
the Bank, or written representations from its officers and directors, the Bank
believes that with respect to the year ended December 31, 1999, the Bank's
officers and directors satisfied the reporting requirements promulgated under
Section 16(a) of the 1934 Act.
The following table sets forth certain information with respect to the
Directors and Executive Officers of the Bank as of December 31, 1999. There are
no family relationships among the individuals listed below and none of them has
been involved in any legal proceedings described in Item 401(d) of Regulation
S-B.
[Download Table]
YEAR FIRST
CURRENT POSITION WITH THE BANK AND ELECTED OR
NAME AND OFFICE HELD AGE PRINCIPAL OCCUPATION APPOINTED
-------------------- --- ------------------------------------ -----------
Benjamin B. Hong 67 President, CEO and Director 1994
Nara Bank, N.A.(1)
Bon T. Goo 50 Executive Vice President and CFO 1990
Nara Bank, N.A.(2)
Min Jung Kim 40 Executive Vice President and CCO 1995
Nara Bank, N.A.(3)
Thomas Chung 72 Chairman of the Board of Directors; 1994
President of His & Her Hair Goods
Co. (Hair goods distributor) since 1962
Brian B. Woo 60 Director; 1989
President of Arrow Deli
(Fastfood business) since 1999
Chang H. Kim 47 Director; 1992
President of Rosabella, Inc.
(Women's clothing manufacturer)
since 1999
Yong H. Kim 58 Director; 1993
President of KOAMEX Wholesale, Inc.
(Grocery wholesaler) since 1978
Hyon M. Park 52 Director; 1992
President of B.B. World Corporation
(Import & Export) since 1978
(1) Prior to joining the bank in 1994, Mr. Hong served as the President and
Chief Executive Officer of Hanmi Bank from 1988 to 1994.
(2) Prior to joining the bank in 1990, Mr. Goo served as Vice President and
Manager of the Accounting, Investment, and Control Division of Hanmi
Bank from 1988 to 1990.
(3) Prior to joining the bank in 1995, Ms. Kim served as Vice President and
Manager of the Western Branch of Hanmi Bank in Los Angeles from 1992 -
1995, and previously served in other position with Hanmi Bank.
36
ITEM 10 EXECUTIVE COMPENSATION
SUMMARY OF COMPENSATION
The following table sets forth certain summary information concerning
compensation paid or accrued to or on behalf of the named executives for each of
the fiscal years ended December 31, 1999, 1998 and 1997.
SUMMARY COMPENSATION TABLE
[Enlarge/Download Table]
LONG TERM COMPENSATION
--------------------------------------------------
ANNUAL COMPENSATION(1)
---------------------------------------------- RESTRICTED OPTION
NAME AND STOCK SHARES/ LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OTHER AWARDS SARS PAYOUTS COMPENSATION
------------------- ---- -------- -------- ----------- ---------- ------- ------- ------------
Benjamin Hong 1999 $184,074 $384,017 $ 12,000(2) N/A -0- N/A $-0-
President & Chief 1998 $179,691 $310,232 $ 12,000(2) N/A -0- N/A $-0-
Executive Officer 1997 $170,346 $154,198 $ 12,000(2) N/A 30,000 N/A $-0-
Bon T. Goo 1999 $ 86,730 $ 43,648 N/A N/A -0- N/A $-0-
EVP & Chief 1998 $ 81,945 $ 53,442 N/A N/A -0- N/A $-0-
Financial Officer 1997 $ 78,042 $ 33,933 N/A N/A 10,000 N/A $-0-
Min J. Kim 1999 $ 84,632 $ 53,482 $ 8,400(3) N/A -0- N/A $-0-
EVP & Chief 1998 $ 75,735 $ 73,165 $ 8,400(3) N/A -0- N/A $-0-
Credit Officer 1997 $ 72,150 $ 53,617 $ 6,650(3) N/A 10,000 N/A $-0-
(1) The Bank furnishes and plans to continue to furnish to certain officers
the use of Bank-owned automobiles which are used primarily for Bank
business purposes. The Bank has provided and plans to continue to
provide certain officers with certain specified life and medical
insurance benefits. Since portions of automobile expenses, club
membership fees, insurance premiums attributable to personal use, and
other perquisites did not exceed the lesser of $50,000 or ten percent
(10%) of the total annual salary reported in the table per individual,
such amounts have not been included in the foregoing figures.
(2) Represents fees received for services as a director of the Bank.
(3) Represents automobile allowance.
EMPLOYEE BENEFIT PLANS
1989 STOCK OPTION PLAN
The Bank adopted a stock option plan in 1989 under which, as amended,
options may be granted to key employees and directors of the Bank. Options are
exercisable in such installments, which need not be equal, as shall be
determined at the time of grant. Option prices may not be less than the fair
market value at the date of grant. The Bank authorized a total of 500,000 shares
under the plan as of December 31, 1999.
Activity in the stock option plans for the years ended December 31,
1999, 1998, and 1997 is as follows: 345,360, 346,000, and 330,000 of options are
exercisable with a weighted average exercise price of $4.59, $4.79, and $4.82
for the years ended December, 1999, 1998, 1997, respectively. The weighted
average remaining contractual life of options outstanding at December 31, 1999
was 6.84 years.
The weighted average fair value of options granted during 1999 and 1997
was $3.71 and $3.18 per share, respectively. No options were granted in 1998.
The fair value of options granted under the Bank's stock option plans during
1999 and 1997 was estimated on the date of grant using the Black Scholes option
- pricing model with the following weighted-average assumptions used: no
dividends yield, expected volatility of 28 percent and 0 percent, respectively,
risk-free interest rate of 6.4 percent and 6.5 percent, respectively, and
expected lives of five and seven years, respectively.
37
DEFERRED COMPENSATION PLAN
In 1996, the Bank established a deferred compensation plan that permits
eligible officers and directors to defer a portion of their compensation. The
deferred compensation, together with accrued accumulated interest, is
distributable in cash after an individual's retirement or termination of
service. The deferred compensation liabilities at December 31, 1999, 1998 and
1997 amounted to approximately $469,605, $314,000 and $185,000, respectively,
which are included on our balance sheets in other liabilities. The Bank has
insured the lives of certain officers and directors who participate in the
deferred compensation plan, to assist in the funding of the deferred
compensation liabilities. The Bank is the owner and beneficiary of these
insurance policies. At December 31, 1999, 1998 and 1997, the cash surrender
value of these policies was $4,850,529, $4,717,741 and $4,620,755, respectively.
401(K) SAVINGS PLAN
In 1996, the Bank established a 401(k) savings plan, which is open to
all eligible employees who are 21 years old or over and have completed one year
of service. The plan requires the Bank to match 50 percent of a participant's
contribution up to 8 percent of the participant's aggregate compensation during
the plan year. Vesting in employer contributions is 20 percent after two years
of service and 20 percent per year thereafter. Total employer contributions to
the plan amounted to approximately $105,000, $47,000, and $46,000 for 1999,
1998, and 1997, respectively.
EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP")
In 1996, the Bank established an ESOP, which is open to all eligible
employees who have completed one year of service. The ESOP purchased 5,000,
4,933, and 7,000 shares of common stock at $10.00, $9.50-$12.50, and $4.125 per
share from outstanding stockholders during 1999, 1998, and 1997, respectively.
The Bank's contribution to the ESOP was approximately $52,000, $52,000, and
$61,000 for 1999, 1998, and 1997, respectively.
STOCK OPTIONS
The following table sets forth certain information regarding stock
options granted to the named executive officers during 1999. The Bank has not
issued Stock Appreciation Rights (SAR's).
OPTION/SAR GRANTS IN 1999
[Download Table]
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN OR BASE EXPIRATION
NAME GRANTED 1998 PRICE DATE
------------- ---------- ------------- -------- ----------
Benjamin Hong 0 N/A N/A N/A
Bon T. Goo 0 N/A N/A N/A
Min J. Kim 0 N/A N/A N/A
The following table sets forth certain information regarding stock
options exercised during 1999 by the executive officers:
38
AGGREGATED OPTION/SAR EXERCISES IN 1999 AND VALUES
[Enlarge/Download Table]
NUMBER OF
SECURITIES VALUE OF
SHARES UNDERLYING OPTION IN-THE-MONEY
ACQUIRED VALUE AT 12/31/99 OPTIONS AT 12/31/99
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- -------- ------------------------- -------------------------
Benjamin Hong 20,000 $60,000 80,000/30,000 $ 602,000(1)/$105,000(2)
Bon T. Goo -0- N/A 20,000/10,000 $ 130,000(3)/$ 35,000(4)
Min J. Kim 10,000 $30,000 10,000/10,000 $ 65,000(5)/$35,000(4)
--------------------------------------------------------------------------------
(1) Assuming an estimated market value of $9.50 per share as of December 31,
1999, and an exercise price of $3.00 per share, these options had a
value of $5.50 per share, times 110,000 shares.
(2) Assuming an estimated market value of $9.50 per share as of December 31,
1999, and an exercise price of $6.00 per share, these options had a
value of $3.50 per share, times 30,000 shares.
(3) Assuming an estimated market value of $9.50 per share as of December 31,
1999, and an exercise price of $3.00 per share, these options had a
value of $5.50 per share, times 20,000 shares.
(4) Assuming an estimated market value of $9.50 per share as of December 31,
1999, and an exercise price of $6.00 per share, these options had a
value of $3.50 per share, times 10,000 shares.
(5) Assuming an estimated market value of $9.50 per share as of December 31,
1999, and an exercise price of $3.00 per share, these options had a
value of $5.50 per share, times 10,000 shares.
DIRECTOR'S FEES
The outside non-employee directors were paid $3,000 monthly if they
attended at least one meeting during a month regardless of the number of
meetings held during a month. The only employee director on the Board (the
President) received $1,000 monthly for his service as a director in addition to
his regular salary and bonuses. The chairman of the Board received an additional
$400 per month for services rendered. Total directors' fees paid in 1999 were
$126,200 of which $72,000 was deferred under the Bank's deferred compensation
plan.
EMPLOYEE AGREEMENTS
The Bank has not entered into any written employment agreements with any
of its officers except as described below.
Benjamin B. Hong was appointed President and CEO of the Bank effective
June 30, 1994. Mr. Hong's employment agreement was for an initial term of five
years from such date with an option to renew such agreement for an additional
four years. Mr. Hong's initial contract expired in June 1999 but was renewed
according to its terms for the additional four-year period. Mr. Hong's
employment agreement provides for a base salary of $120,000 at the initial year,
plus profit sharing equal to a minimum of 7% of pre-tax income of the Bank, an
automobile allowance, one month's paid vacation per year and payment of monthly
country club dues and business-related expenses. Mr. Hong has been granted stock
options to purchase 100,000 share of Common Stock of the Bank at an exercise
price of $3.00 per share. Such options expire at the end of his employment
period. The terms of these options are subject to the terms and conditions set
forth in the Bank's 1989 Stock Option Plan.
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership, as of March 15,
2000, (1) of the Bank's Common Stock held by each director, officer and
principal shareholder of the Bank and (2) all directors and officers as a group.
Except as set forth below, Nara Bank does not know of any person who is the
beneficial owner of five percent (5%) or more of the issued and outstanding
common stock of Nara Bank.
39
COMMON STOCK BENEFICIALLY OWNED
[Download Table]
NUMBER OF PERCENT OF
NAME AND POSITIONS HELD SHARES CLASS
-------------------------- ------------- ----------
Benjamin B. Hong(3) 173,712(4) 3.0%
President, CEO & Director
Bon T. Goo(3) 31,080(5)(6) 0.7%
Executive Vice President &
Chief Financial Officer
Min J. Kim(3) 30,800(7) 0.7%
Executive Vice President &
Chief Credit Administrator
Thomas Chung (3) 309,721(5) 7.03%
Chairman of Board
Chang H. Kim, Director(3) 97,629(5)(8) 2.22%
Yong H. Kim, Director(3) 173,562(5) 3.94%
Hyon M. Park, Director(3) 105,232(5)(9) 2.39%
Brian B. Woo, Director(3) 60,996(5)(10) 1.40%
ALL DIRECTORS AND OFFICERS 987,732(11) 22.32%
(8 TOTAL)
John Barry(12) 388,800(13) 8.83%
Chong-Moon Lee(14) 439,700 9.98%
--------------------------------------------------------------------------------
(1) Beneficial Ownership includes shares held directly or indirectly,
beneficially or of record, and includes shares held as community
property of joint tenancy with a spouse, by a family trust, by a closely
held business or other associate, or by a minor child residing at home.
The definition of beneficial ownership includes any shares that may be
acquired within sixty (60) days of the record date.
(2) The term "officer" means the President & Chief Executive Officer, the
Executive Vice President & Chief Financial Officer and the Executive
Vice President & Chief Credit Administrator.
(3) The address for each of these individuals is c/o Nara Bank, N.A., 3701
Wilshire Boulevard, Los Angeles, California 90017.
(4) Includes 110,000 shares vested but not exercised under Nara Bank's 1989
Stock Option Plan.
(5) Includes 30,000 shares vested but not exercised under Nara Bank's 1989
Stock Option Plan.
(6) Includes 1,080 shares held by Mr. Goo's spouse.
(7) Includes 20,000 shares vested but not exercised under Nara Bank's 1989
Stock Option Plan.
(8) Includes 1,512 shares held by Mr. Kim's minor children. (9) Includes
2,800 shares held by Mr. Parks' spouse. (10) Includes 216 shares held by
Mr. Woo's spouse.
(11) Includes 310,000 shares vested but not exercised under Nara Bank's 1989
Stock Option Plan.
(12) Mr. Barry's address is 2104 Hastings Ave., Newport, MN 55055.
(13) Includes 64,800 shares held by Mr. Barry's minor children.
(14) Mr. Lee's address is 1245 Oakmead Pkwy, Sunnyvale, CA 94086.
40
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are no existing or proposed material transactions between the Bank
and any of the Bank's officers, directors, or principal shareholders or the
immediate family or associates of the foregoing persons, except as indicated
below.
Some of the directors and officers of the Bank and the immediate
families and the business organizations with which they are associated, are
customers of, and have had banking transactions with, the Bank in ordinary
course of the Bank's business and the Bank expects to have banking transaction
with such persons in the future. All loans made to such persons have been made
on substantially the same terms, including interest rate and collateral, as
those prevailing for comparable contemporaneous transactions with other persons
of similar creditworthiness and do not involve more than a normal risk of
collectibility or present other unfavorable features.
PART IV
ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are incorporated by reference to the same
numbered pages of the Registrants' Annual Report on Form 10-K for 1999,
or other document as noted.
[Download Table]
EXHIBIT NO. DESCRIPTION
----------- -----------
2.1 Agreement and Plan of Reorganization between Nara Bank,
N.A., Korea First Bank of New York and Korea First Ltd.,
dated November 9, 1999*
3(i) Articles of Association**
3(ii) Bylaws**
4.1 Subordinated Note Material***
10.1 Lease for premises located at 5901 N. Cicero Avenue,
#508, Chicago, Illinois***
23 Consent of Deloitte & Touche, LLP***
24 Power of Attorney***
* Incorporated by reference to Registrant's Form 8-K filed with
the Comptroller on November 13, 1999.
** Incorporated by reference to Registrant's Form 10-K for the year
ended December 31, 1996 filed with the Comptroller on or about
March 31, 1997.
*** Filed herewith.
(b) Reports on Form 8-K.
During the quarter ended December 31, 1999, the Bank filed a Current
Report on Form 8-K on November 13, 1999, relating to the announcement of the
signing of the definitive agreement to acquire Korea First Bank of New York. The
report did not require the filing of financial statements.
41
SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized on March 22, 2000.
NARA BANK, NATIONAL
ASSOCIATION
By: /s/ Benjamin B. Hong Benjamin B. Hong
----------------------------------
President &
Chief Executive Officer
By /s/ Bon T. Goo Bon T. Goo
---------------------------------- Executive Vice President
and Chief Financial Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities on
the dates indicated.
[Download Table]
By: /s/ Thomas Chung March 22, 2000 Thomas Chung
---------------------------------- Director and
Chairman of the Board
By: /s/ Benjamin B. Hong March 22, 2000 Benjamin B. Hong
---------------------------------- Director
By: /s/ Chang Hee Kim March 22, 2000 Chang Hee Kim
---------------------------------- Director
By: /s/ Yong Hwan Kim March 22, 2000 Yong Hwan Kim
---------------------------------- Director
By: /s/ Hyon M. Park March 22, 2000 Hyon M. Park
---------------------------------- Director
By: /s/ Brian B. Woo March 22, 2000 Brian B. Woo
---------------------------------- Director
42
NARA BANK
Financial Statements as of December 31,
1999 and 1998 and for Each of the Three
Years in the Period Ended December 31,
1999 and Independent Auditors' Report
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Nara Bank
Los Angeles, California:
We have audited the accompanying statements of financial condition of
Nara Bank (the "Bank") as of December 31, 1999 and 1998, and the related
statements of income, changes in stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Bank's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of Nara Bank as of December 31, 1999
and 1998, and the results of its operations and its cash flows for the each of
the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States of America.
February 10, 2000
F-2
NARA BANK
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------
[Enlarge/Download Table]
ASSETS 1999 1998
------------ ------------
Cash and cash equivalents:
Cash and due from banks $ 20,189,328 $ 16,729,573
Federal funds sold 42,500,000 58,300,000
------------ ------------
Total cash and cash equivalents 62,689,328 75,029,573
Interest-bearing deposits with other financial institutions 3,274,034 525,590
Securities available for sale, at fair value (amortized cost of
$16,238,725) (Note 2) 16,047,035
Securities held to maturity, at amortized cost (fair value:
1999 - $16,140,614; 1998 - $16,741,419) (Note 2) 17,284,223 16,979,867
Interest-only strip, at fair value (amortized cost of $573,515
and $490,159 in 1999 and 1998, respectively) 496,517 491,862
Loans held for sale, at the lower of cost or market 168,250 415,138
Loans receivable, net of allowance for loan losses:
1999 - $3,643,884 ; 1998 - $2,961,127 (Note 3) 235,119,175 164,296,090
Premises and equipment, net (Note 4) 4,719,147 4,802,509
Federal Reserve Bank stock 666,950 570,650
Accrued interest receivable 1,907,279 1,198,562
Servicing asset 892,877 565,526
Deferred income taxes, net (Note 7) 992,302 1,163,745
Customers' liabilities on acceptances 4,859,180 1,841,524
Cash surrender value (Note 9) 4,850,529 4,717,741
Goodwill and intangible assets, net (Note 14) 1,747,725 1,948,068
Other assets 3,183,846 1,579,855
------------ ------------
TOTAL $358,898,397 $276,126,300
============ ============
See accompanying notes to financial statements.
(Continued)
F-3
NARA BANK
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------
[Enlarge/Download Table]
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
------------- -------------
DEPOSITS (Note 5):
Noninterest-bearing $ 115,623,519 $ 89,918,570
Interest-bearing:
Savings deposits 38,528,628 21,682,522
Money market and other 37,288,132 39,417,752
Time deposits of $100,000 or more 76,624,977 54,002,835
Other time deposits 51,803,781 44,287,560
------------- -------------
Total deposits 319,869,037 249,309,239
Subordinated notes (Note 6) 4,300,000
Accrued interest payable 1,591,486 1,315,544
Acceptances outstanding 4,859,180 1,841,524
Other liabilities (Note 9) 1,552,436 854,658
------------- -------------
Total liabilities 332,172,139 253,320,965
------------- -------------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY (Notes 2, 8, 9, and 12):
Common stock, $3 par value; authorized, 10,000,000 shares; issued and
outstanding, 4,403,753 and 4,369,759 shares at
December 31, 1999 and 1998, respectively 13,211,259 12,135,996
Capital surplus 9,019,706 6,884,525
Retained earnings 4,652,655 3,783,875
Accumulated other comprehensive income - unrealized gain
(loss) on available for sale securities and interest-only strips,
net of taxes of $111,325 and $764 in 1999 and 1998,
respectively (157,362) 939
------------- -------------
Total stockholders' equity 26,726,258 22,805,335
------------- -------------
TOTAL $ 358,898,397 $ 276,126,300
============= =============
See accompanying notes to financial statements.
(Concluded)
F-4
NARA BANK
STATEMENTS OF INCOME
THREE-YEAR PERIOD ENDED DECEMBER 31, 1999
--------------------------------------------------------------------------------
[Enlarge/Download Table]
1999 1998 1997
----------- ----------- -----------
INTEREST INCOME:
Interest and fees on loans $21,308,667 $15,264,197 $10,970,417
Interest on investment securities 1,649,054 1,328,076 976,892
Interest on federal funds sold and interest-bearing
deposits with other financial institutions 2,263,180 2,065,048 1,331,459
----------- ----------- -----------
Total interest income 25,220,901 18,657,321 13,278,768
----------- ----------- -----------
INTEREST EXPENSE:
Interest on deposits (Note 5) 7,808,879 6,107,496 4,204,111
Interest on subordinated notes 110,591
----------- ----------- -----------
Total interest expense 7,919,470 6,107,476 4,204,111
----------- ----------- -----------
Net interest income before provision for
loan losses 17,301,431 12,549,825 9,074,657
Provision for loan losses (Note 3) 3,395,000 1,430,000 1,130,000
----------- ----------- -----------
Net interest income after provision for loan losses 13,906,431 11,119,825 7,944,657
----------- ----------- -----------
OTHER OPERATING INCOME:
Service charges on deposit accounts 3,308,936 2,131,560 1,689,859
Other charges and fees 3,722,435 2,495,311 1,770,103
Net gain on sales of SBA loans 909,202 1,628,195 1,306,555
Gain on sale of securities 118,823 14,363 35,381
----------- ----------- -----------
Total other operating income 8,059,396 6,269,429 4,801,898
----------- ----------- -----------
OTHER OPERATING EXPENSES:
Salaries and employee benefits 8,170,937 5,995,997 4,408,428
Occupancy 1,880,845 1,425,987 970,887
Furniture and equipment 761,907 553,146 404,949
Advertising 231,609 256,629 210,264
Communications 370,124 290,170 194,596
Data processing 1,432,060 960,623 616,159
Deposit insurance premium 28,391 18,816 13,486
Professional fees 936,075 771,256 614,978
Office supplies 403,342 310,219 262,865
Other 2,121,537 1,880,454 1,242,850
----------- ----------- -----------
Total other operating expenses 16,336,827 12,463,297 8,939,462
----------- ----------- -----------
EARNINGS BEFORE INCOME TAX PROVISION 5,629,000 4,925,957 3,807,093
INCOME TAX PROVISION (Note 7) 1,657,199 1,730,365 1,110,800
----------- ----------- -----------
NET EARNINGS $ 3,971,801 $ 3,195,592 $ 2,696,293
=========== =========== ===========
EARNINGS PER SHARE (Note 13):
Basic $ 0.90 $ 0.73 $ 0.79
Diluted $ 0.87 $ 0.70 $ 0.77
See accompanying notes to financial statements.
F-5
NARA BANK
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE-YEAR PERIOD ENDED DECEMBER 31, 1999
--------------------------------------------------------------------------------
[Enlarge/Download Table]
ACCUMULATED
NUMBER OF OTHER
SHARES COMMON CAPITAL RETAINED COMPREHENSIVE COMPREHENSIVE
OUTSTANDING STOCK SURPLUS EARNINGS INCOME INCOME
----------- ------------ ------------ ------------ ------------- -------------
BALANCE,
JANUARY 1, 1997 2,995,332 $ 8,985,996 $ 2,935,025 $ (2,108,010) $ (69,234)
Issuance of common
stock 1,050,000 3,150,000 3,949,500
Comprehensive income:
Net income 2,696,293 $ 2,696,293
Other comprehensive
income -
Change in unrealized
gain (loss) on
securities available
for sale and IO strips,
net of tax 88,641 88,641
------------
Comprehensive income $ 2,784,934
----------- ------------ ------------ ------------ ------------- ============
BALANCE,
DECEMBER 31, 1997 4,045,332 12,135,996 6,884,525 588,283 19,407
Comprehensive income:
Net income 3,195,592 $ 3,195,592
Other comprehensive
income -
Change in unrealized
gain (loss) on
securities available
for sale and IO strips,
net of tax (18,468) (18,468)
------------
Comprehensive income $ 3,177,124
============
See accompanying notes to financial statements.
(Continued)
F-6
NARA BANK
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE-YEAR PERIOD ENDED DECEMBER 31, 1999
--------------------------------------------------------------------------------
[Enlarge/Download Table]
ACCUMULATED
NUMBER OF OTHER
SHARES COMMON CAPITAL RETAINED COMPREHENSIVE COMPREHENSIVE
OUTSTANDING STOCK SURPLUS EARNINGS INCOME INCOME
----------- ------------ ------------ ------------ ------------- -------------
BALANCE,
DECEMBER 31, 1998 4,045,332 $ 12,135,996 $ 6,884,525 $ 3,783,875 $ 939
Issuance of common
stock 34,000 102,000 5,423
Stock dividend 324,427 973,263 2,129,758 (3,103,021)
Comprehensive income:
Net income 3,971,801 $ 3,971,801
Other comprehensive
income -
Change in unrealized
gain (loss) on
securities available
for sale and IO strips,
net of tax (158,301) (158,301)
------------
Comprehensive income $ 3,813,500
----------- ------------ ------------ ------------ ------------- ============
BALANCE,
DECEMBER 31, 1999 4,403,759 $ 13,211,259 $ 9,019,706 $ 4,652,655 $ (157,362)
=========== ============ ============ ============ =============
1999 1998 1997
------------ ------------ ------------
DISCLOSURE OF
RECLASSIFICATION
AMOUNT FOR
DECEMBER 31:
Unrealized gain on
securities available for
sale:
Unrealized holding gains
(losses) arising during
period, net of tax expense
(benefit) of ($58,005) in
1999, ($6,567) in 1998,
and $73,247 in 1997 $ (87,007) $ (9,850) $ 109,870
------------ ------------ ------------
Reclassification
adjustment for gains
included in net income,
net of tax expense
of $47,529 in 1999,
$5,745 in 1998, and
$14,152 in 1997 (71,294) (8,618) (21,229)
------------ ------------ ------------
Net change in unrealized
gain of securities
available for sale, net
of tax expense of
$111,325 in 1999,
$764 in 1998, and
$16,372 in 1997 $ (158,301) $ (18,468) $ 88,641
============ ============ ============
See accompanying notes to financial statements.
(Concluded)
F-7
NARA BANK
STATEMENTS OF CASH FLOWS
THREE-YEAR PERIOD ENDED DECEMBER 31, 1999
--------------------------------------------------------------------------------
[Enlarge/Download Table]
1999 1998 1997
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 3,971,801 $ 3,195,592 $ 2,696,293
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation, amortization, and accretion 414,752 39,485 112,424
Net accretion of deferred loan fees (39,821) (42,565) (50,229)
Provision for investment valuation (212,515) 212,515
Provision for loan losses 3,395,000 1,430,000 1,130,000
Provision for other real estate owned losses 13,000 9,778 9,503
Proceeds from sales of SBA loans 18,185,262 18,749,762 15,131,239
Net gain on sales of SBA loans (909,202) (1,628,195) (1,306,555)
Loss on foreclosed assets and premises and
equipment 819 8,302 25,487
Originations of SBA loans (14,379,951) (15,359,274) (15,734,615)
Deferred income tax benefit 282,768 (58,950) (334,072)
Gain on sales of securities available for sale (118,823) (14,363) (35,381)
Increase in accrued interest receivable (708,717) (192,030) (166,778)
(Increase) decrease in other assets (1,971,322) (498,510) 215,277
Increase in accrued interest payable 275,942 328,474 218,513
Increase (decrease) in other liabilities 697,778 (495,587) 461,286
------------ ------------ ------------
Net cash provided by operating activities 8,896,771 5,684,434 2,372,392
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans receivable (76,894,301) (50,552,943) (28,759,109)
Net increase in cash surrender value (132,788) (96,986) (2,110,130)
Purchases of premises and equipment (583,022) (1,446,750) (913,492)
Proceeds from disposition of premises and equipment 18,408
Proceeds from matured or called securities available
for sale 1,502,342 3,940,000 6,000,000
Proceeds from matured or called securities held to
maturity 500,000 2,752,800 300,000
Proceeds from sales of securities available for sale 4,763,950 971,251
Purchases of securities available for sale (15,037,751)
Purchases of securities held to maturity (7,486,797) (4,832,890) (13,416,712)
Increase in interest-only strip (4,655) (119,519) (355,615)
Increase in interest-bearing deposits with other
financial institutions (2,748,444) 1,218,793 (391,000)
Proceeds from sales of other real estate owned 13,529 295,711 320,978
Purchases of Federal Reserve Bank stock (96,300) (276,250) (24,800)
Consideration received for business combination 6,991,934
Cash and cash equivalents acquired from business
combination 806,427
------------ ------------ ------------
Net cash used in investing activities (96,204,237) (41,319,673) (38,360,221)
------------ ------------ ------------
See accompanying notes to financial statements.
(Continued)
F-8
NARA BANK
STATEMENTS OF CASH FLOWS
THREE-YEAR PERIOD ENDED DECEMBER 31, 1999
--------------------------------------------------------------------------------
[Enlarge/Download Table]
1999 1998 1997
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits $ 70,559,798 $ 69,260,519 $ 48,427,528
Proceeds from issuance of common stock 7,099,500
Proceeds from issuance of subordinated notes 4,300,000
Proceeds from exercise of stock options 107,423
------------ ------------ ------------
Net cash provided by financing activities 74,967,221 69,260,519 55,527,028
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (12,340,245) 33,625,280 19,539,199
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 75,029,573 41,404,293 21,865,094
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 62,689,328 $ 75,029,573 $ 41,404,293
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid $ 7,643,528 $ 5,602,398 $ 3,985,598
Income taxes paid $ 1,580,000 $ 2,472,000 $ 1,405,800
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
ACTIVITIES:
Transfer of loans to other real estate owned $ 57,310 $ 243,009 $ 346,970
Transfer of securities from held to maturity to
available for sale $ 4,645,127 $ -- $ --
Transfer of retained earnings to common stock for
stock dividend $ 3,103,021 $ -- $ --
See accompanying notes to financial statements.
(Concluded)
F-9
NARA BANK
NOTES TO FINANCIAL STATEMENTS
THREE-YEAR PERIOD ENDED DECEMBER 31, 1999
--------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nara Bank (the "Bank"), a national association organized under the laws
of the United States, maintains eight branch operations and two loan production
offices serving individuals and small to medium-sized businesses in the Los
Angeles, San Jose, New York City, Seattle, Chicago, and surrounding areas. The
Bank's primary source of revenue is from providing financing for business
working capital, commercial real estate and trade activities, and its investment
portfolio. The accounting and reporting policies of the Bank are in accordance
with generally accepted accounting principles and conform to general practices
in the banking industry.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include cash and
due from banks and federal funds sold, all of which have maturities less than 90
days. The Bank is required to maintain reserve balances with the Federal Reserve
Bank under the Federal Reserve Act. Such reserves were approximately $7,383,000
and $4,522,000 at December 31, 1999 and 1998, respectively.
INVESTMENT SECURITIES - Investment securities are classified into one of
three categories and accounted for as follows:
(i) Securities that the Bank has the positive intent and ability to
hold to maturity are classified as "held to maturity" and
reported at amortized cost;
(ii) Securities that are bought and held principally for the purpose
of selling them in the near future are classified as "trading
securities" and reported at fair value. Unrealized gains and
losses are recognized in earnings; and
(iii) Securities not classified as held to maturity or trading
securities are classified as "available for sale" and reported
at fair value. Unrealized gains and losses are reported as a
separate component of stockholders' equity as accumulated other
comprehensive income.
Accreted discounts and amortized premiums on investment
securities are included in interest income, and unrealized and realized gains or
losses related to the holding or selling of securities are calculated using the
specific identification method.
LOANS - Interest on loans is credited to income as earned and is
accrued only if deemed collectible. Accrual of interest is discontinued when a
loan is over 90 days delinquent or if management believes that collection is
highly uncertain. Generally, payments received on nonaccrual loans are recorded
as principal reductions. Interest income is recognized after all principal has
been repaid or an improvement in the condition of the loan has occurred that
would warrant resumption of interest accruals. Nonrefundable fees, net of
incremental costs, associated with the origination or acquisition of loans are
deferred and recognized as an adjustment of the loan yield over the life of the
loan in a manner that approximates the interest method. Other loan fees and
charges, representing service costs for the prepayment of loans, for delinquent
payments or for miscellaneous loan services, are recorded as income when
collected.
F-10
Certain Small Business Administration ("SBA") loans that may be
sold prior to maturity have been designated as held for sale and are recorded at
the lower of cost or market value, on an aggregate basis. A valuation allowance
is established if the market value of such loans is lower than their cost, and
operations are charged or credited for valuation adjustments. A portion of the
gains on sale of SBA loans is recognized as other operating income at the time
of the sale. The remaining portion of the gain is deferred and amortized over
the remaining life of the loan as an adjustment to yield. Upon sales of such
loans, the Bank receives a fee for servicing the loans. The servicing asset is
recorded based on the present value of the contractually specified servicing
fee, net of servicing costs over the estimated life of the loan, discounted at
the rate of the related note plus 1 percent and a range of CPR from 10 percent
to 16 percent. The servicing asset is amortized in proportion to and over the
period of estimated servicing income. The Bank has capitalized $459,029 and
$645,160 of servicing assets at December 31, 1999 and 1998, respectively, and
amortized $35,438, $125,723, and $42,429 during the years ended December 31,
1999, 1998, and 1997, respectively. Management periodically evaluates the
servicing asset for impairment. Impairment, if it occurs, is recognized in a
valuation allowance in the period of impairment. No impairment existed at
December 31, 1999 and 1998.
An interest-only strip is recorded based on the present value of
the excess of the total servicing fee over the contractually specified servicing
fee for the estimated life of the loan, calculated using the same assumptions as
noted above. Such interest-only strip is accounted for at the estimated fair
value, with unrealized gain or loss recorded as an adjustment in accumulated
other comprehensive income in stockholders' equity.
The Bank offers direct financing leases to customers whereby the
assets leased are acquired without additional financing from other sources.
Direct financing leases are carried net of unearned income, unamortized
nonrefundable fees, and related direct costs associated with the origination or
purchase of leases.
ALLOWANCE FOR LOAN LOSSES - Loan losses are charged and
recoveries are credited to the allowance account. Additions to the allowance
account are charged to provision for loan losses. The allowance for loan losses
is maintained at a level considered adequate by management to absorb potential
losses in the loan portfolio. The adequacy of the allowance is determined by
management based upon an evaluation and review of the loan portfolio,
consideration of historical loan loss experience, current economic conditions,
changes in the composition of the loan portfolio, analysis of collateral values,
and other pertinent factors.
A loan is considered impaired when management determines that the
Bank will be unable to collect all amounts due according to the original
contractual terms of the loan agreement. The amount of the impairment and any
subsequent changes are recorded through the provision for loan losses as an
adjustment to the allowance for loan losses. Impairment is measured either based
on the present value of the loan's expected future cash flows or the estimated
fair value of the collateral.
OTHER REAL ESTATE OWNED - Other real estate owned (OREO), which
represents real estate acquired through foreclosure in satisfaction of
commercial and real estate loans, is stated at fair value less estimated selling
costs of the real estate. Loan balances in excess of the fair value of the real
estate acquired at the date of acquisition are charged to the allowance for loan
losses. Any subsequent operating expenses or income, reduction in estimated fair
values, and gains or losses on disposition of such properties are charged or
credited to current operations.
F-11
PREMISES AND EQUIPMENT - Premises and equipment are stated at
cost less accumulated depreciation and amortization. Depreciation on buildings,
furniture, fixtures, and equipment is computed on the straight-line method over
the estimated useful lives of the related assets, which range from 5 to 40
years.
Leasehold improvements are capitalized and amortized on the
straight-line method over the term of the lease or the estimated useful lives of
the improvements, whichever is shorter. An accelerated method of depreciation is
followed, as appropriate, for federal income tax purposes.
GOODWILL AND INTANGIBLE ASSETS - Goodwill represents the excess
of cost over the fair value of net assets acquired. Goodwill is amortized on a
straight-line basis over a period of up to 15 years. Core deposit premiums arise
from the acquisition of deposits and are amortized on a straight-line basis over
the estimated life of the deposit base acquired, currently seven years.
INCOME TAXES - Deferred income tax assets and liabilities
represent the tax effects, based on current tax law, of future deductible or
taxable amounts attributable to events that have been recognized in the
financial statements. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities, the
projected future taxable income, and tax planning strategies in making this
assessment.
EARNINGS PER SHARE - Basic EPS excludes dilution and is computed
by dividing earnings available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution of securities that could share in the earnings. EPS data for
1998 and 1997 was retroactively restated, reflecting the 1999 stock dividend.
STOCK COMPENSATION PLANS - Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation,"
encourages all entities to adopt a fair value based method of accounting for
employee stock compensation plans, whereby compensation cost is measured at the
grant date based on the value of the award and is recognized over the service
period. However, it also allows an entity to continue to measure compensation
cost for those plans using the intrinsic value based method prescribed by
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees," whereby compensation cost is the excess, if any, of the quoted
market price of the stock at the grant date (or other measurement date) over the
amount an employee must pay to acquire the stock. Stock options granted under
the Bank's stock option plan have no intrinsic value at the grant date, and
under Opinion No. 25 no compensation cost is recognized for them. The Bank has
elected to continue with the accounting methodology in Opinion No. 25 and, as a
result, has provided pro forma disclosures of net income and earnings per share
and other disclosures as if the fair value method of accounting had been applied
(see Note 8).
IMPAIRMENT OF LONG-LIVED ASSETS - The Bank evaluates long-lived
assets for impairment whenever events or changes in circumstances indicate that
the carrying value of an asset may not be recoverable. If the estimated future
cash flows (undiscounted and without interest charges) from the use of an asset
are less than the carrying value, a write-down would be recorded to reduce the
related asset to its estimated sale value.
F-12
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
DERIVATIVE FINANCIAL INSTRUMENTS - During 1999, the Bank adopted
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133 requires companies to record derivatives on the balance sheet as
assets or liabilities, measured at fair value. Gains or losses resulting from
changes in the values of derivatives are accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. The key criterion
for hedge accounting is that the hedging relationship must be highly effective
in achieving offsetting changes in fair value or cash flows. The Bank did not
engage in derivative activities during 1999.
RECLASSIFICATIONS - Certain reclassifications were made to the
prior year's presentation to conform to the current year presentation.
2. INVESTMENT SECURITIES
The following is a summary of investment securities:
[Enlarge/Download Table]
AT DECEMBER 31, 1999
-----------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
AVAILABLE FOR SALE COST GAIN LOSS VALUE
----------- ----------- ----------- -----------
U.S. government $11,051,458 $ 13,842 $ 163,361 $10,901,939
U.S. corporate bonds 3,486,420 70,028 3,416,392
Korean corporate bonds 1,700,847 27,857 1,728,704
----------- ----------- ----------- -----------
$16,238,725 $ 41,699 $ 233,389 $16,047,035
=========== =========== =========== ===========
HELD TO MATURITY
U.S. government $14,657,246 $ -- $ 838,030 $13,819,216
U.S. corporate bonds 2,626,977 305,579 2,321,398
----------- ----------- ----------- -----------
$17,284,223 $ -- $ 1,143,609 $16,140,614
=========== =========== =========== ===========
F-13
[Enlarge/Download Table]
AT DECEMBER 31, 1998
-----------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
HELD TO MATURITY COST GAIN LOSS VALUE
----------- ----------- ----------- -----------
U.S. government $ 8,310,729 $ 52,885 $ 51,888 $ 8,311,726
U.S. corporate bonds 2,578,927 122,243 142,470 2,558,700
Korean corporate bonds 6,302,726 5,583 437,316 5,870,993
----------- ----------- ----------- -----------
17,192,382 $ 180,711 $ 631,674 $16,741,419
=========== =========== ===========
Allowance for investment
valuation (212,515)
-----------
$16,979,867
===========
As permitted with adoption of SFAS No. 133, the Bank, during
1999, reclassified Korean Corporate bonds with a book value of $6,302,726 and an
estimated fair value of $5,870,993 at December 31, 1998 from the held to
maturity to the available for sale portfolio. During 1999, the Bank sold four of
these securities with a book value of $4,645,127 for $4,763,950. At the time of
sale, unrealized gains of $118,823 in accumulated other comprehensive income
were reclassified into earnings.
The amortized cost and estimated fair value of investment
securities at December 31, 1999, by contractual maturity, are shown below.
Expected maturities may differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or prepayment
penalties.
[Download Table]
ESTIMATED
AMORTIZED FAIR
COST VALUE
----------- -----------
Held to maturity:
Due after one year through five years $ 8,488,054 $ 8,290,944
Due after five years through ten years 3,003,204 2,870,638
Due after ten years 5,792,965 4,979,032
----------- -----------
$17,284,223 $16,140,614
=========== ===========
Available for sale:
Due after one year through five years $10,703,341 $10,662,755
Due after five years through ten years 5,035,384 4,901,367
Due after ten years 500,000 482,913
----------- -----------
$16,238,725 $16,047,035
=========== ===========
Securities with amortized cost of approximately $3,517,950 and
$2,384,000 at December 31, 1999 and 1998, respectively, were pledged to secure
public deposits and for other purposes as required or permitted by law.
F-14
3. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
The following is a summary of loans by major category at December
31, 1999 and 1998:
[Download Table]
1999 1998
------------- -------------
Commercial loans $ 95,115,257 $ 78,110,543
Real estate loans 103,311,422 52,822,997
Consumer loans 35,295,124 30,651,078
Lease financing 5,127,564 5,640,018
------------- -------------
238,849,367 167,224,636
Unamortized deferred loan fees, net of costs (86,308) 32,581
Allowance for loan losses (3,643,884) (2,961,127)
------------- -------------
Loans receivable, net $ 235,119,175 $ 164,296,090
============= =============
At December 31, 1999 and 1998, the Bank had $54,614,668 and
$45,192,540, respectively, of loans sold to unaffiliated parties for which it
performs servicing.
Management believes that the allowance for loan losses is
adequate to provide for losses inherent in the loan portfolio. However, the
allowance is an estimate that is inherently uncertain and depends on the outcome
of future events. Management's estimates are based on previous loan loss
experience; volume, growth, and composition of the loan portfolio; the value of
collateral; and current economic conditions. The Bank's lending is concentrated
in consumer, commercial, and real estate loans in Los Angeles, San Jose, New
York City, Seattle, and surrounding areas. Although management believes the
level of the allowance is adequate to absorb losses inherent in the loan
portfolio, declines in the local economy as well as other unforeseen events may
result in increasing losses that cannot reasonably be predicted at this date.
Activity in the allowance for loan losses is as follows:
[Download Table]
1999 1998 1997
----------- ----------- -----------
Balance, beginning of year $ 2,961,127 $ 2,137,983 $ 1,801,932
Provision for loan losses 3,395,000 1,430,000 1,130,000
Allowance acquired in business acquisition 285,330
Loans charged off (2,938,939) (1,014,923) (988,258)
Recoveries of charge-offs 226,696 122,737 194,309
----------- ----------- -----------
Balance, end of year $ 3,643,884 $ 2,961,127 $ 2,137,983
=========== =========== ===========
At December 31, 1999 and 1998, the Bank had classified $2,714,416
and $3,788,277, respectively, of its commercial and real estate loans as
impaired with specific reserves of $1,032,042 and $1,354,421, respectively. The
average recorded investment in impaired loans during the years ended December
31, 1999, 1998, and 1997 was $3,109,366, $3,658,999, and $2,110,563,
respectively. It is generally the Bank's policy to place loans on nonaccrual
status when they are 90 days past due. At December 31, 1999, loans on nonaccrual
status totaled approximately $1,523,216, compared to approximately $2,311,000 at
December 31, 1998. Interest income of $170,260, $278,684, and $206,990 was
recognized on impaired loans during the years ended December 31, 1999, 1998, and
1997, respectively.
F-15
The following is an analysis of loans to directors of the Bank
and their affiliates as of December 31, 1999. All such loans were made under
terms that are consistent with the Bank's normal lending policies:
[Download Table]
1999 1998
----------- -----------
Outstanding balance, beginning of year $ 376,000 $ 286,000
Credit granted 1,770,000 110,000
Repayments (240,000) (20,000)
----------- -----------
Outstanding balance, end of year $ 1,906,000 $ 376,000
=========== ===========
Income from these loans totaled approximately $86,000, $40,000,
and $35,000 for the years ended December 31, 1999, 1998, and 1997, respectively.
4. PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1999 and 1998 consisted of
the following:
[Download Table]
1999 1998
----------- -----------
Building $ 1,952,644 $ 1,952,644
Equipment, furniture, and fixtures 3,227,671 2,854,136
Leasehold improvements 1,808,847 1,615,623
----------- -----------
6,989,162 6,422,403
Accumulated depreciation and amortization (2,270,015) (1,619,894)
----------- -----------
$ 4,719,147 $ 4,802,509
=========== ===========
5. DEPOSITS
Time deposits by maturity dates are as follows at December 31,
1999 and 1998:
[Download Table]
1999 1998
------------ ------------
Less than three months $ 63,452,000 $ 44,191,000
After three to six months 25,322,000 21,556,000
After six months to twelve months 36,598,000 28,747,000
After twelve months 3,057,000 3,796,000
------------ ------------
Total $128,429,000 $ 98,290,000
============ ============
Interest expense for certificates of deposit of $100,000 or more
amounted to $3,081,634, $2,579,322, and $1,692,179 in 1999, 1998, and 1997,
respectively.
F-16
6. SUBORDINATED NOTES
At December 31, 1999, the Bank had subordinated capital notes
outstanding of $4,300,000 with a stated interest rate of nine percent, maturing
on September 30, 2004. Interest on the notes is payable quarterly, and no
scheduled payments of principal are due prior to maturity. The Bank may redeem
the notes prior to their maturity on or after September 30, 2002.
The notes qualify as Tier 2 risk-based capital under the Office
of the Comptroller of the Currency guidelines for assessing regulatory capital.
For the total risk-based capital ratio, the amount of notes that qualify as
capital is reduced as those notes approach maturity. At December 31, 1999,
$3,440,000 of the notes qualified as risk-based capital.
7. INCOME TAXES
A summary of income tax provision (benefit) for 1999, 1998, and
1997 follows:
[Download Table]
CURRENT DEFERRED TOTAL
----------- ----------- -----------
1999:
Federal $ 1,352,562 $ 267,151 $ 1,619,713
State 21,869 15,617 37,486
----------- ----------- -----------
$ 1,374,431 $ 282,768 $ 1,657,199
=========== =========== ===========
1998:
Federal $ 1,712,645 $ (112,977) $ 1,599,668
State 76,670 54,027 130,697
----------- ----------- -----------
$ 1,789,315 $ (58,950) $ 1,730,365
=========== =========== ===========
1997:
Federal $ 1,444,072 $ 324,929 $ 1,769,001
State 800 (659,001) (658,201)
----------- ----------- -----------
$ 1,444,872 $ (334,072) $ 1,110,800
=========== =========== ===========
F-17
As of December 31, 1999 and 1998, the federal and state deferred
tax assets (liabilities) are as follows:
[Download Table]
1999 FEDERAL STATE TOTAL
--------- --------- ---------
Statutory bad debt deduction (more) less than
financial statement provision $(179,126) $ 394,999 $ 215,873
Net operating loss carryforward 281,989 85,352 367,341
Tax depreciation less than financial statement
depreciation (128,938) (42,319) (171,257)
Los Angeles Revitalization Zone ("LARZ")
credit carryforward 135,798 135,798
Deferred compensation 159,666 50,905 210,571
Loan charge-offs 147,483 47,021 194,504
Mark to market on loans held for sale 102,223 32,592 134,815
Unrealized loss on available for sale securities
and interest-only strip 85,720 25,605 111,325
State taxes deferred and other (206,668) (206,668)
--------- --------- ---------
$ 262,349 $ 729,953 $ 992,302
========= ========= =========
[Download Table]
1998 FEDERAL STATE TOTAL
--------- --------- ---------
Statutory bad debt deduction (more) less than
financial statement provision $(175,787) $ 320,970 $ 145,183
Net operating loss carryforward 310,188 94,338 404,526
Tax depreciation less than financial statement
depreciation (105,162) (39,302) (144,464)
LARZ credit carryforward 96,288 96,288
Deferred compensation 106,865 34,070 140,935
Loan charge-offs 344,268 109,755 454,023
Market to market on loans held for sale 11,292 3,600 14,892
Interest income 150,769 48,066 198,835
State taxes deferred and other (234,262) (234,262)
Book loss on investment securities 72,256 23,035 95,291
Intangibles (5,689) (1,813) (7,502)
--------- --------- ---------
$ 474,738 $ 689,007 $1,163,745
========= ========= =========
F-18
A reconciliation of the difference between the federal statutory
income tax rate and the effective tax rate as of December 31 is shown in the
following table:
[Download Table]
1999 1998 1997
---- ---- ---
Statutory tax (benefit) rate 35 % 35 % 35 %
State taxes, net of federal tax benefits 1 2 4
Net operating loss carryover benefit 4
Realization of valuation allowance for deferred tax assets (16)
Reversal of tax accrual (6)
Other (1) (2) 2
---- ---- ---
29% 35% 29%
==== ==== ===
At December 31, 1999, the Bank had federal and California net
operating loss carryforwards of approximately $829,000 and $787,000,
respectively, which will expire through 2009. Due to the ownership change that
occurred on July 15, 1994, the annual limitation that can be utilized to offset
future taxable income approximates $83,000.
The Bank also has LARZ hiring and sales and use tax credits of
approximately $135,000, which will expire in the years 2007 through 2012.
8. STOCKHOLDERS' EQUITY
The Bank adopted a stock option plan in 1989 under which, as
amended, options may be granted to key employees and directors of the Bank.
Options are exercisable in such installments, which need not be equal, as shall
be determined at the time of grant. Option prices may not be less than the fair
market value at the date of grant. The Bank authorized a total of 500,000 shares
under the plan as of December 31, 1999.
Activity in the stock option plans for the years ended December
31, 1999, 1998, and 1997 is as follows:
[Download Table]
WEIGHTED
AVERAGE
RANGE OF EXERCISE
OPTIONS EXERCISE PRICE
GRANTED PRICES PER SHARE
------- ------------- ---------
Balance, December 31, 1997 370,000 $3.00 - $6.00 $ 4.87
--------
Balance, December 31, 1998 370,000 $3.00 - $6.00 $ 4.87
Prorate effect on options,
due to stock dividend 31,200 $2.78 - $5.56 $ 4.91
Options granted 30,000 $ 9.26 $ 9.26
Options exercised (34,000) $2.78 - $5.56 $ 3.17
--------
Balance, December 31, 1999 397,200 $2.78 - $9.26 $ 5.02
========
F-19
345,360, 346,000, and 330,000 of options are exercisable with a
weighted average exercise price of $4.59, $4.79, and $4.82 for the years ended
December 31, 1999, 1998, and 1997, respectively. The weighted average remaining
contractual life of options outstanding at December 31, 1999 was 6.84 years.
Had compensation cost for the Bank's stock option plan been
determined based on the fair value at the grant date, the Bank's net income and
earnings per share for the years ended December 31, 1999, 1998, and 1997 would
have been reduced to the pro forma amounts indicated below:
[Download Table]
1999 1998 1997
---------- ---------- ----------
Net income:
As reported $3,971,801 $3,195,592 $2,696,293
Pro forma $3,951,221 $3,184,592 $1,896,393
Earnings per share:
As reported:
Basic $ 0.90 $ 0.73 $ 0.79
Diluted $ 0.87 $ 0.70 $ 0.77
Pro forma:
Basic $ 0.90 $ 0.73 $ 0.55
Diluted $ 0.86 $ 0.69 $ 0.54
The weighted average fair value of options granted during 1999
and 1997 was $3.71 and $3.18 per share, respectively. No options were granted in
1998. The fair value of options granted under the Company's stock option plans
during 1999 and 1997 was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions used: no
dividends yield, expected volatility of 28 percent and 0 percent, respectively,
risk-free interest rate of 6.4 percent and 6.5 percent, respectively, and
expected lives of five and seven years, respectively.
9. EMPLOYEE BENEFIT PLANS
DEFERRED COMPENSATION PLAN - In 1996, the Bank established a
deferred compensation plan that permits eligible officers and directors to defer
a portion of their compensation. The deferred compensation, together with
accrued accumulated interest, is distributable in cash after retirement or
termination of service. The deferred compensation liabilities at December 31,
1999 and 1998 amounted to approximately $469,605 and $314,000, respectively,
which are included in other liabilities. The Bank has insured the lives of
certain officers and directors who participate in the deferred compensation
plan, to assist in the funding of the deferred compensation liabilities. The
Bank is the owner and beneficiary of the insurance policies. At December 31,
1999 and 1998, the cash surrender value of these policies was $4,850,529 and
$4,717,741, respectively.
401(K) SAVINGS PLAN - In 1996, the Bank established a 401(k)
savings plan, which is open to all eligible employees who are 21 years old or
over and have completed one year of service. The plan requires the Bank to match
50 percent of the participant contribution up to 8 percent of compensation
during the plan year. Vesting in employer contributions is 20 percent after two
years of service and 20 percent per year thereafter. Total employer
contributions to the plan amounted to approximately $105,000, $47,000, and
$46,000 for 1999, 1998, and 1997, respectively.
F-20
EMPLOYEES STOCK OWNERSHIP PLAN ("ESOP") - In 1996, the Bank
established an ESOP, which is open to all eligible employees who have completed
one year of service. The ESOP purchased 5,000, 4,993, and 7,000 shares of common
stock at $10.00, $9.50 - $12.50, and $4.125 per share from outstanding
stockholders during 1999, 1998, and 1997, respectively. The Bank's contribution
to the ESOP was approximately $52,000, $52,000, and $61,000 for 1999, 1998, and
1997, respectively.
10. COMMITMENTS AND CONTINGENCIES
The Bank leases its premises under noncancelable operating
leases, and, at December 31, 1999, the future minimum rental commitments under
these leases and other operating leases are as follows:
[Download Table]
2000 $ 981,405
2001 920,648
2002 876,016
2003 382,236
2004 266,627
Thereafter 214,406
----------
$3,641,338
==========
Rental expense recorded under such leases in 1999, 1998, and 1997
amounted to approximately $1,057,000, $586,000, and $508,000, respectively.
In the normal course of business, the Bank is involved in various
legal claims. Management has reviewed all legal claims against the Bank with
counsel and has taken into consideration the views of such counsel as to the
outcome of the claims. In management's opinion, the final disposition of all
such claims will not have a material adverse effect on the financial position
and results of operations of the Bank.
The Bank is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments include commitments to
extend credit, standby letters of credit, and commercial letters of credit.
These instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the statements of financial
condition. The Bank's exposure to credit loss in the event of nonperformance by
the other party to commitments to extend credit and standby letters of credit is
represented by the contractual notional amount of those instruments. The Bank
uses the same credit policies in making commitments and conditional obligations
as it does for extending loan facilities to customers. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the counterparty. Collateral held varies but
may include accounts receivable; inventory; property, plant, and equipment; and
income-producing properties.
Commitments at December 31, 1999 are summarized as follows:
[Download Table]
Commitments to extend credit $56,277,785
Standby letters of credit 2,851,000
Other letters of credit 17,554,000
F-21
11. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments." The estimated fair
value amounts have been determined by the Bank using available market
information and appropriate valuation methodologies. However, considerable
judgment is required to interpret market data in order to develop the estimates
of fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Bank could realize in a current market exchange.
The use of different market assumptions and/or estimation methodologies may have
a material effect on the estimated fair value amounts.
[Enlarge/Download Table]
DECEMBER 31, 1999
------------------------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
------------ ------------
Assets:
Cash and cash equivalents $ 62,689,328 $ 62,689,328
Interest-bearing deposits in other financial institutions 3,274,034 3,274,034
Securities available for sale 16,047,035 16,047,035
Securities held to maturity 17,284,223 16,140,614
Interest-only strips 496,517 496,517
Loans, net 235,287,425 240,557,662
Federal Reserve Bank stock 666,950 666,950
Loan servicing asset 892,877 892,877
Accrued interest receivable 1,907,279 1,907,279
Customers' liabilities on acceptances 4,859,180 4,859,180
Liabilities:
Noninterest-bearing deposits $115,623,519 $115,623,519
Interest-bearing deposits 204,245,518 204,274,772
Subordinated notes 4,300,000 4,297,873
Accrued interest payable 1,591,486 1,591,486
Bank's liabilities on acceptances 4,859,180 4,859,180
F-22
[Download Table]
DECEMBER 31, 1998
------------------------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
------------ ------------
Assets:
Cash and cash equivalents $ 75,029,573 $ 75,029,573
Short-term investments 525,590 525,590
Investment securities 16,979,867 16,741,419
Interest-only strips 491,862 491,862
Loans, net 164,711,228 164,026,653
Federal Reserve Bank stock 570,650 570,650
Accrued interest receivable 1,198,562 1,198,562
Customers' liabilities on acceptances 1,841,524 1,841,524
Liabilities:
Noninterest-bearing deposits $ 89,918,570 $ 89,918,570
Interest-bearing deposits 159,390,669 159,724,944
Accrued interest payable 1,315,544 1,315,544
Bank's liabilities on acceptances 1,841,524 1,841,524
The following methods and assumptions were used by the Bank in
estimating the fair values of its financial instruments:
Cash and Cash Equivalents - The carrying amounts
approximate fair values due to the short-term nature of these
instruments.
Interest Bearing Deposits in Other Financial
Institutions - The carrying amounts approximate fair value due to
the short-term nature of these investments.
Investment Securities - The fair values of
investment securities are generally obtained from market bids
from similar or identical securities, or are obtained from
independent securities brokers or dealers.
Interest-Only Strips - The fair value of
interest-only strips are calculated by bank management based on
the present value of the excess of total servicing fees over the
contractually specified servicing fee for the estimated life of
loans that were sold, discounted at the effective interest rate.
Loan Servicing Asset - The fair value of the loan
servicing asset is based on the present value of the
contractually specified servicing fee, net of servicing cost, for
the estimated life of the loans the Bank sold, based upon
approximate prepayment speed, discounted by the effective
interest rate.
Loans - To estimate the fair value of loans
receivable, the portfolio was divided between loans with fixed
and variable interest terms.
The fair value of loans was estimated by taking
into account both credit and interest risks. Credit risk was
adjusted to the loans based on the Bank's migration analysis.
Interest risk was adjusted to only fixed loans, while the loans
with variable interest rates were assumed to have no interest
risk.
F-23
The interest risk adjustment for fixed loans was
estimated by discounting the future cash flows using the current
interest rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining
maturities. The fair value of nonperforming loans was not
estimated because it is not practical to reasonably assess the
credit adjustment that would be applied in the marketplace for
such loans. The estimated fair value is net of allowance for loan
losses. The carrying amount of accrued interest receivable
approximates its fair value.
Federal Reserve Bank Stock - The carrying amount
approximates fair value, as the stocks may be sold back to the
Federal Reserve Bank at carrying value.
Customers' Liabilities on Acceptances - The
carrying amount approximates fair value due to the short-term
maturities of these instruments.
Deposits - The fair value of demand deposits,
savings accounts, and certain money market deposits is the amount
payable on demand at the reporting date. Thus, the carrying
amount of such deposit liabilities is a reasonable estimate of
fair value. For fixed-maturity certificates of deposit, the fair
value is estimated using the rates currently offered for deposits
of similar remaining maturities. The carrying amount of accrued
interest payable approximates its fair value.
Bank's Liabilities on Acceptances - The carrying
amount approximates fair value due to the short-term maturities
of these instruments.
Loan Commitments and Standby Letters of Credit -
The fair value of loan commitments and standby letters of credit
is based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standing. At December
31, 1999 and 1998, the fair value for loan commitments and
standby letters of credit is immaterial.
The fair value estimates presented herein are based on pertinent
information available to management at December 31, 1999 and 1998. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since that date, and
therefore, current estimates of fair value may differ significantly from the
amounts presented herein.
12. REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
F-24
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes that, as of December 31, 1999 and 1998,
the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1999 and 1998, the most recent notification
from the Office of the Comptroller of the Currency categorized the Bank as "well
capitalized" under the regulatory framework for prompt corrective action. To be
categorized as well capitalized the Bank must maintain minimum total risk-based,
Tier I risk-based, and Tier I leverage ratios as set forth in the table below.
There are no conditions or events since the notification that management
believes have changed the institution's category.
The Bank may not pay dividends or make any other capital
distribution if, after making the distribution, the Bank would be under
capitalized. Based on the current financial status of the Bank, the Bank
believes that such limitations and restrictions will not impair the Bank's
ability to continue to pay dividends.
The Bank's actual capital amounts and ratios are also presented
in the table.
[Enlarge/Download Table]
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
--------------------- -------------------------- ---------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------- ----- ----------- ----- ----------- -----
As of December 31, 1999:
Total capital
(to risk-weighted assets) $32,088,239 11.5% $22,322,253 > 8.0% $27,902,817 > 10.0%
Tier I capital
(to risk-weighted assets) $25,157,264 9.0% $11,181,006 > 4.0% $16,771,509 > 6.0%
Tier I capital (to average assets) $25,157,264 7.2% $11,979,650 > 4.0% $14,974,562 > 5.0%
As of December 31, 1998:
Total capital
(to risk-weighted assets) $23,412,271 11.4% $16,429,664 > 8.0% $20,537,580 > 10.0%
Tier I capital
(to risk-weighted assets) $20,856,328 10.2% $ 8,178,952 > 4.0% $12,268,428 > 6.0%
Tier I capital (to average assets) $20,856,328 8.4% $ 9,931,585 > 4.0% $12,404,481 > 5.0%
F-25
13. EARNINGS PER SHARE
Earnings per share as of December 31, 1999, 1998, and 1997 are as
follows:
[Download Table]
INCOME SHARES PER SHARE
(Numerator) (Denominator) Amount
----------- ------------- ---------
1999
Basic EPS -
Income available to common stockholders $3,971,801 4,391,874 $ 0.90
Effect of dilutive securities -
Options 192,564 (0.03)
---------- --------- --------
Diluted EPS -
Income available to common stockholders $3,971,801 4,584,438 $ 0.87
========== ========= ========
1998
Basic EPS -
Income available to common stockholders $3,195,592 4,368,959 $ 0.73
Effect of dilutive securities -
Options 220,663 (0.03)
---------- --------- --------
Diluted EPS -
Income available to common stockholders $3,195,592 4,589,622 $ 0.70
========== ========= ========
1997
Basic EPS -
Income available to common stockholders $2,696,293 3,423,959 $ 0.79
Effect of dilutive securities -
Options 70,774 (0.02)
---------- --------- --------
Diluted EPS -
Income available to common stockholders $2,696,293 3,494,733 $ 0.77
========== ========= ========
14. GOODWILL AND INTANGIBLE ASSETS
On October 9, 1998, the Bank purchased certain assets and assumed
certain liabilities of Korea Exchange Bank, Flushing Branch. The fair
value of assets acquired and liabilities assumed was $12,597,376 and
$21,587,465, respectively, and the Bank received cash of $6,991,934. The
Bank's intangible assets resulting from the acquisition, which was
accounted for as a purchase, are summarized as follows:
[Download Table]
1999 1998
---------- ----------
Core deposit premiums, net $ 723,828 $ 849,709
Goodwill, net 1,023,897 1,098,359
Total $1,747,725 $1,948,068
---------- ----------
1,747,725 1,948,068
========== ==========
F-26
The balance of core deposit premiums is being amortized over its
remaining useful life, currently seven years. Amortization expense for
core deposit premiums was $125,881 and $31,471 for the years ended
December 31, 1999 and 1998, respectively. Amortization expense for
goodwill was $74,462 and $18,616 for the years ended December 31, 1999
and 1998, respectively.
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data follows:
[Enlarge/Download Table]
THREE MONTHS ENDED
------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1999
Net interest income $3,676 $3,788 $4,741 $5,096
Provision for credit losses 350 930 615 1,500
Net earnings 903 787 1,049 1,233
Basic earnings per common share 0.21 0.17 0.24 0.28
Diluted earnings per share 0.20 0.17 0.23 0.27
1998
Net interest income $2,764 $3,032 $3,143 $3,611
Provision for credit losses 315 305 305 505
Net earnings 571 799 753 1,073
Basic earnings per common share 0.13 0.18 0.17 0.25
Diluted earnings per share 0.12 0.17 0.16 0.25
1997
Net interest income 1,919 2,127 2,316 2,713
Provision for credit losses 210 270 300 350
Net earnings 615 666 881 534
Basic earnings per common share 0.18 0.19 0.26 0.16
Diluted earnings per share 0.18 0.19 0.25 0.15
16. BUSINESS SEGMENT INFORMATION
The Bank segregates its operations into three primary segments:
Banking Operations, Trade Finance Services ("TFS"), and Small Business
Administration Lending Services ("SBA"). The Bank determines the operating
results of each segment based on an internal management system that allocates
certain expenses to each segment.
BANKING OPERATIONS - The Bank provides lending products,
including commercial installment and real estate loans, to its customers.
TRADE FINANCE SERVICES - The Trade Finance department allows the
Bank's import/export customers to handle their international transactions. Trade
finance products include the issuance and collection of letters of credit,
international collection, and import/export financing.
F-27
SMALL BUSINESS ADMINISTRATION LENDING SERVICES - The SBA
department provides customers of the Bank access to the United States SBA
guaranteed lending program.
[Enlarge/Download Table]
BUSINESS SEGMENT
------------------------------------------------------------------------
BANKING
1999 OPERATIONS TFS SBA BANK
---------- -------- -------- --------
(DOLLARS IN THOUSANDS)
Net interest income $ 13,408 $ 2,110 $ 1,783 $ 17,301
Less provision for loan losses 1,975 1,040 380 3,395
Other operating income 5,135 1,401 1,524 8,060
-------- -------- -------- --------
Net revenue 16,568 2,471 2,927 21,966
Other operating expenses 13,344 1,524 1,469 16,337
-------- -------- -------- --------
Earnings before taxes $ 3,224 $ 947 $ 1,458 $ 5,629
======== ======== ======== ========
Total assets $280,272 $ 33,723 $ 44,903 $358,898
======== ======== ======== ========
[Enlarge/Download Table]
BUSINESS SEGMENT
------------------------------------------------------------------------
BANKING
1998 OPERATIONS TFS SBA BANK
---------- -------- -------- --------
(DOLLARS IN THOUSANDS)
Net interest income $ 9,645 $ 1,895 $ 1,010 $ 12,550
Less provision for loan losses 1,175 80 175 1,430
Other operating income 2,764 1,252 2,253 6,269
-------- -------- -------- --------
Net revenue 11,234 3,067 3,088 17,389
Other operating expenses 10,275 1,150 1,038 12,463
-------- -------- -------- --------
Earnings before taxes $ 959 $ 1,917 $ 2,050 $ 4,926
======== ======== ======== ========
Total assets $219,091 $ 31,402 $ 25,633 $276,126
======== ======== ======== ========
[Enlarge/Download Table]
BUSINESS SEGMENT
------------------------------------------------------------------------
BANKING
1997 OPERATIONS TFS SBA BANK
---------- -------- -------- --------
(DOLLARS IN THOUSANDS)
Net interest income $ 6,824 $ 1,521 $ 730 $ 9,075
Less provision for loan losses 1,005 50 75 1,130
Other operating income 1,809 1,216 1,776 4,801
-------- -------- -------- --------
Net revenue 7,628 2,687 2,431 12,746
Other operating expenses 6,957 1,145 837 8,939
-------- -------- -------- --------
Earnings before taxes $ 671 $ 1,542 $ 1,594 $ 3,807
======== ======== ======== ========
Total assets $138,087 $ 26,395 $ 16,652 $181,134
======== ======== ======== ========
F-28
17. SUBSEQUENT EVENT
On February 2, 2000, the stockholders of the Bank unanimously approved
an acquisition agreement, dated November 9, 1999, whereby the Bank will
acquire Korea First Bank of New York ("KFB"). The Federal Deposit
Insurance Corporation and the Office of the Comptroller of the Currency
approved the purchase of KFB on February 8, 2000.
The purchase price of KFB will be $10,537,000, subject to certain
adjustments, to be paid in cash by the Bank at the closing. The
acquisition will be accounted for using purchase accounting. Because the
Bank is acquiring the common stock of KFB for near or below book value,
after adjustments, the Bank does not expect to record a material amount
of goodwill.
******
F-29
APPENDIX VII
OFFICE OF THE COMPTROLLER OF THE CURRENCY
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 2000 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to _____________
NARA BANK, N.A.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
[Enlarge/Download Table]
United States 95-4170121
-------------------------------------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification Number)
3701 Wilshire Boulevard, Suite 220, Los Angeles, California 90010
--------------------------------------------------------------------------------
(Address of Principal executive offices) (ZIP Code)
(213) 639-1700
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of November 13, 2000, there were 5,461,092 outstanding shares of the
issuer's Common Stock, $3.00 par value.
FORM 10-Q
NARA BANK, NATIONAL ASSOCIATION
TABLE OF CONTENTS
[Enlarge/Download Table]
PAGE
----
PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Statements of Financial Condition - September 30, 2000 and December 31, 1999 2
Statements of Operations - Three and Nine Months Ended September 30, 2000 and 1999 3
Statements of Changes in Shareholders' Equity - Nine Months Ended September 30, 2000 and 1999 4
Statements of Cash Flows - Nine Months Ended September 30, 2000 and 1999 5
Notes to Financial Statements 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 9
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 22
PART II OTHER INFORMATION
Other Information 25
Signature 29
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENT
UNAUDITED STATEMENTS OF FINANCIAL CONDITION
[Enlarge/Download Table]
September 30, December 31,
2000 1999
------------- -------------
ASSETS
Cash and due from banks $ 29,901,611 $ 20,189,328
Interest-bearing deposits in other financial institutions 5,744,909 3,274,034
Securities available for sale, at fair value
(amortized cost: September 30, 2000- $34,915,973; Dec 31,1999 - $16,238,725) 34,734,678 16,047,035
Securities held to maturity, at amortized cost (fair value:
September 30, 2000 - $16,622,965; Dec 31, 1999 - $16,140,614) 17,625,919 17,284,223
FRB Stock 666,950 666,950
FHLB Stock 96,400 0
Interest-only strips (Note 2) 426,505 496,517
Federal funds sold 63,100,000 42,500,000
Loans receivable, net of allowance (Note 3) 336,261,441 235,119,175
Loans held for sale, at the lower of cost or market 3,244,547 168,250
Other real estate owned (OREO) 249,320 0
Premises and equipment 15,255,870 4,719,147
Accrued interest receivable 2,781,590 1,907,279
Deferred income taxes, net 985,997 992,302
Customers' acceptance liabilities 5,267,832 4,859,180
Cash surrender value 4,959,335 4,850,529
Goodwill and intangible assets, net 1,597,465 1,747,725
Other assets 5,757,648 4,076,723
------------- -------------
TOTAL $ 528,658,016 $ 358,898,397
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing $ 170,087,267 $ 115,623,519
Interest-bearing:
Money market and other 64,681,762 37,288,132
Savings deposits 46,105,853 38,528,628
Time deposits of $100,000 or more 117,808,116 76,624,977
Other time deposits 74,076,640 51,803,781
------------- -------------
Total Deposits 472,759,638 319,869,037
Subordinated notes 4,300,000 4,300,000
Accrued interest payable 3,039,317 1,591,486
Acceptances outstanding 5,267,832 4,859,180
Other liabilities 1,551,734 1,552,436
------------- -------------
Total liabilities 486,918,521 332,172,139
Stockholders' equity:
Common stock, $3 par value; (Note 4 and 7)
authorized, 10,000,000 shares;
issued and outstanding, 5,461,092 and 4,403,753
shares at September 30, 2000 and December 31, 1999 16,383,276 13,211,259
Capital Surplus (Note 7) 15,725,681 9,019,706
Retained earnings 9,788,599 4,652,655
Accumulated other comprehensive income --
unrealized gain (loss) on AFS securities and interest
only strips, net of taxes of $108,062 and $33,044
at September 30, 2000 and December 31, 1999, respectively (158,061) (157,362)
------------- -------------
Total stockholders' equity 41,739,495 26,726,258
Total liabilities and stockholders' equity $ 528,658,016 $ 358,898,397
============= =============
See accompanying notes to financial statements
2
INCOME STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
[Enlarge/Download Table]
For the Three months For the Nine Months
Ended September 30, Ended September 30,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
INTEREST INCOME:
Interest and fees on loans $ 9,106,790 $ 5,313,722 $ 24,154,914 $ 15,080,834
Interest on securities and other investments 886,479 420,513 2,420,127 1,064,133
Interest on federal fund sold and interest-bearing deposits
with other financial institutions 1,107,101 681,594 2,470,340 1,695,744
------------ ------------ ------------ ------------
Total interest income 11,100,369 6,415,829 29,045,380 17,840,711
INTEREST EXPENSE:
Interest expense on deposits 3,696,694 2,037,934 9,484,039 5,635,629
Interest on subordinated notes and other borrowings 96,113 0 294,249 0
------------ ------------ ------------ ------------
Total interest expense 3,792,807 2,037,934 9,778,288 5,635,629
Net interest income before provision for
loan losses 7,307,562 4,377,895 19,267,092 12,205,082
Provision for loan losses 400,000 615,000 400,000 1,895,000
------------ ------------ ------------ ------------
Net interest income after provision for loan losses 6,907,562 3,762,895 18,867,092 10,310,082
OTHER OPERATING INCOME:
Service charge on deposit accounts 1,479,471 895,703 4,116,797 2,350,162
Other charges and fees 1,416,466 1,012,691 4,135,317 2,700,044
Lease income (Note 5) 150,414 0 395,793 0
Gain (Loss) on sale of fixed assets 0 0 389,322 (799)
Gain on sale of securities 0 0 255 118,823
(Loss) on sale of OREO 0 0 0 (395)
Gain on sale of SBA loans 121,919 194,133 683,156 694,579
------------ ------------ ------------ ------------
Total other operating income 3,168,270 2,102,528 9,720,640 5,862,414
OTHER OPERATING EXPENSE:
Salaries, wages and employee benefits 3,326,611 2,044,256 8,537,555 5,661,415
Net occupancy expense 952,685 487,157 2,482,979 1,424,951
Furniture and equipment expense 263,672 178,447 736,462 551,225
Other operating expenses 1,686,528 1,345,649 4,616,337 3,959,084
Total other operating expense 6,229,495 4,055,508 16,373,333 11,596,675
------------ ------------ ------------ ------------
EARNINGS BEFORE INCOME TAX PROVISION 3,846,336 1,809,914 12,214,400 4,575,820
INCOME TAX PROVISION 1,053,637 761,000 4,083,574 1,836,800
NET EARNINGS $ 2,792,699 $ 1,048,914 $ 8,130,826 $ 2,739,020
============ ============ ============ ============
EARNINGS PER SHARE
Basic $ 0.55 $ 0.22 $ 1.68 $ 0.58
Diluted $ 0.53 $ 0.21 $ 1.61 $ 0.55
See accompanying notes to financial statements
3
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1999 and 2000
[Enlarge/Download Table]
ACCUMULATED
NUMBER OF OTHER OTHER
SHARES COMMON CAPITAL RETAINED COMPREHENSIVE COMPREHENSIVE
OUTSTANDING STOCK SURPLUS EARNINGS INCOME (LOSS) INCOME
----------- ------------ ------------ ------------ ------------- -------------
BALANCE,
DECEMBER 31, 1998 4,045,332 $ 12,135,996 $ 6,884,525 $ 3,783,875 $ 939
Exercise of options 34,000 102,000 5,423
Stock dividend 324,427 973,263 2,129,758 (3,103,021)
Comprehensive income: 2,739,020 2,739,020
Net income
Other comprehensive
income -
Change in unrealized
gain (loss) on
securities available
for sale and IO strips
net of tax (26,618) (26,618)
------------
Comprehensive income $ 2,712,402
------------ ------------ ------------ ------------ ------------ ============
BALANCE,
SEPTEMBER 30, 1999 4,403,759 $ 13,211,259 $ 9,019,706 $ 3,419,873 $ (25,679)
============ ============ ============ ============ ============
BALANCE,
DECEMBER 31, 1999 4,403,753 $ 13,211,259 $ 9,019,706 $ 4,652,655 $ (157,362)
Stock dividend 352,339 1,057,017 1,937,865 (2,994,882)
Issuance of common stock
plus warrants 700,000 2,100,000 4,768,110
Exercise of option 5,000 15,000
Comprehensive income:
Net Income 8,130,826 8,130,826
Other comprehensive
income -
Change in unrealized
gain (loss) on
securities available
for sale and IO strips
net of tax (699) (699)
------------
Comprehensive income $ 8,130,127
------------ ------------ ------------ ------------ ------------ ============
BALANCE,
SEPTEMBER 30, 2000 5,461,092 $ 16,383,276 $ 15,725,681 $ 9,788,599 $ (158,061)
============ ============ ============= ============ ============
See accompanying notes to financial statements
4
STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
[Enlarge/Download Table]
2000 1999
------------ ------------
CASH FLOW FROM OPERATING ACTIVITIES
Net Earnings from Operation $ 8,130,826 $ 2,739,020
Adjustment to reconcile net earnings
Depreciation, amortization, and accretion 749,672 89,315
Provision for loan losses 400,000 1,895,000
Provision for investment securities 0 (212,515)
Proceeds from Sales of SBA Loans 14,171,004 13,185,437
Origination of SBA Loans (33,045,900) (27,920,650)
Net gain on sale of SBA loans (683,156) (694,579)
(Gain) Loss on Sales of furniture and equipments (389,322) 799
Decrease (increase) in accrued interest receivable (572,189) (447,583)
Decrease (increase) in other assets (1,888,666) (2,731,696)
Increase (decrease) in accrued interest payable 956,554 149,107
Increase (decrease) in other liabilities (1,934,528) 2,887,080
------------ ------------
Net Cash Used in Operating Activities (14,105,705) (11,061,265)
------------ ------------
CASH FLOWS FROM INVESTMENT ACTIVITIES
Net increase in loans receivable (53,971,563) (37,785,271)
Net increase in cash surrender value (108,806)
Purchase of premises and equipment (742,876) (527,698)
Purchase of investment securities (8,719,455) (17,555,000)
Purchase of FHLB Stock (96,400) 0
Proceeds from disposition of premises and equipment 2,418,390 0
Proceeds from matured or called securities held to maturity 0 1,000,000
Proceeds from the sale of investment securities available for sale 0 4,900,000
(Increase) Decrease in interest only strip 70,012 51,219
(Increase) Decrease in interest-bearing deposits with other financial institutions (3,834,000) (2,997,000)
Proceeds from matured interest-bearing deposits with other financial institution 1,366,000 0
Cash paid for the acquisition of KFBNY (8,699,445) 0
Cash & cash equivalents acquired from business combination 24,081,068 0
------------ ------------
Net Cash Used in Investing Activities (48,237,075) (52,913,750)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 85,771,965 46,547,303
Proceeds for stock option 15,000 107,422
Proceeds from the issuance of Common Stock 6,868,100
Proceeds from the issuance of Capital Notes 0 4,300,000
------------ ------------
Net Cash Provided by financing Activities 92,655,065 50,954,725
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 30,312,285 (13,020,290)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 62,689,328 75,029,573
------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 93,001,613 $ 62,009,283
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest Paid 8,332,844 5,473,462
Income Taxes Paid 2,453,200 1,984,000
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTMENT ACTIVITIES
Transfer of Loans to Other Real Estate Owned 205,011 40,558
Transfer from Retained Earnings to Common Stock for the
issuance of 8% stock dividend 2,994,882 3,103,021
The Bank purchased three branches of Korea First Bank of New York
In conjunction of the acquisition, net liabilities were assumed as follows:
Cash acquired (24,081,068)
Loans acquired, net (30,747,857)
Interest receivable (302,122)
Fixed assets acquired at FV (12,812,811)
Other assets, net (10,185,499)
Deposit assumed 67,800,172
Accrued interest assumed 491,277
Other liabilities assumed 1,138,462
------------
Net liabilities assumed at FV (8,699,446)
See accompanying notes to financial statements
5
NOTES TO FINANCIAL STATEMENTS
Balance Sheets at September 30, 2000 (unaudited) and December 31, 1999
Income Statements for the three months (unaudited) and nine months ended
September 30, 2000 and 1999 (unaudited)
Statements of Changes in Stockholders' Equity for the nine months ended
September 30, 2000 and 1999 (unaudited)
Cash Flow Statements for the nine months ended September 30, 2000 and
1999 (unaudited)
1. BASIS OF PRESENTATION
The accounting and reporting policies of Nara Bank, National Association
("the Bank") are in accordance with generally accepted accounting principles and
conform to practices within the banking industry. The financial information
included herein is unaudited and, in the opinion of management, reflect all
adjustments necessary (consisting of normal and recurring adjustments) for a
fair presentation of the financial condition and results of operations as of and
for the period ended September 30, 2000. The results of operations for interim
period are not necessarily indicative of the results that will be reported for
the entire year. The balance sheet information as of December 31, 1999 was
derived from the Bank's audited financial statements included in the 1999 Annual
Report to Shareholders on Form 10-KSB.
Pursuant to Securities and Exchange Commission Rule 10-01 and Accounting
Principles Board Opinion No. 28, the Bank's interim financial statements do not
include complete disclosures as contemplated in annual financial statements.
Accordingly, these financial statements should be read in conjunction with the
Bank's 1999 Annual Report to Shareholders on Form 10-KSB.
2. INTEREST-ONLY STRIPS
Certain Small Business Administration (SBA) loans that may be sold prior
to maturity have been designated as held-for-sale and are recorded at the lower
of cost or market value on an aggregate basis. Under Statement of Financial
accounting Standards (SFAS) No. 125, the servicing fees on SBA sold will be
separated into two categories called "Servicing Assets" and "Interest-only Strip
Receivable". The interest-only strip receivable is the interest income retained
by the Bank that exceeds the contractually specified servicing fees (100 basis
points). Pursuant to SFAS 125, the Bank treats this receivable as a financial
asset and subsequently, it is measured like investments in debt securities
classified as available-for-sales.
3. LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are carried at the principal amount outstanding. Interest revenue
on non-discounted loans generally is accrued based on the principal amount
outstanding. Interest revenue on discounted loans is accrued based on the
methods that generally approximate the interest method. Interest income is not
recognized on loans if collection of the interest is deemed to be unlikely. In
1995, the Bank adopted SFAS No. 114, "Accounting by Creditors for Impairment of
a Loan". As amended by SFAS No. 118,
6
SFAS No. 114 generally requires impaired loans to be measured based on the
present value of expected future cash flows discounted at the loans' effective
interest rate or, as an expedient, at the loans' observable market price or the
fair value of the collateral if a loan is collateral-dependent. Creditors may
select the measurement method on a loan-by-loan basis except that
collateral-dependent loans for which foreclosure is probable must be measured at
the fair value of the collateral. SFAS No. 114 also prescribes measuring
impairment of a restructured loan by discounting the total expected future cash
flows at the loan's effective rate of interest in the original loan agreement.
The allowance is an amount that management believes will be adequate to
absorb losses inherent within existing loans, based on evaluations of the
collectibility of loans and prior loan loss experience. The evaluations take
into consideration such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality review of specific problem loans, and
current economic conditions and trends that may affect the borrowers' ability to
pay.
4. DIVIDENDS
In May of 2000, the Bank paid an 8.0% stock dividend to shareholders of
record on April 14, 2000. All share and per share data have been retroactively
restated to reflect the 2000 stock dividend. In June of 1999, the Bank paid an
8.0% stock dividend to shareholders of record on May 10, 1999. All share and per
share data was restated in 1999 to reflect the 1999 stock dividend.
5. LEASE INCOME
In connection with the acquisition of KFBNY in February 2000, the Bank
recognized lease income from one of the buildings acquired, located in
Manhattan, New York. The building is twelve stories with the Bank occupying two
floors and a basement. The remaining floors are leased. The building is
currently in escrow, which will be closed in the beginning of the fourth
quarter. Lease income is classified as "other operating income". Management
feels that it is not necessary to classify the rental income separately as
non-operating income since it will only be temporary operation until the close
of escrow.
6. RECENT ACCOUNTING PRONOUNCEMENT
On December 3, 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB" or the "Bulletin") 101, Revenue Recognition in
Financial Statements. The Bulletin provided views in applying generally accepted
accounting principles to selected revenue recognition issues. The Bulletin
further emphasized that revenue should not be recognized until it is realized or
realizable and earned. SAB 101, as amended by SAB 101A and 101B, is to be
implemented by the Bank no later than the fourth fiscal quarter of fiscal years
beginning after December 15, 1999. In management's opinion, implementation of
SAB 101 will not have a material impact to the overall financial position or
results of operations of the Bank.
7
7. CAPITAL OFFERING
On August 18, 2000, the Bank issued 175,000 units at a purchase price of
$40 per unit. Each unit consisted of four shares of common stock and one
detachable, non-transaferable three-year warrant to purchase one share of common
stock. The warrant is exercisable based on a sliding scale of prices which
depends upon when the warrant is exercised. The warrant exercised within one
year of its grant date will be exercisable at $11, a warrant exercised after one
year and within two years of its grant will be exercisable at $12 and a warrant
exercised within three years from the grant data will be exercisable at $13.
8. EARNINGS PER SHARE
Basic EPS excludes dilution and is computed by dividing earnings
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution of
securities that could share in the earnings. EPS data for 1999 was retroactively
restated, reflecting the 2000 stock dividend.
9. COMMITMENTS AND CONTINGENCIES
The Bank is a party to routine litigation incidental to its business,
none of which is considered likely to have a materially adverse effect on the
Bank. Neither the Bank nor any of its property is subject to any material
pending legal proceedings except as described below.
In connection with the acquisition of KFBNY, the Bank assumed certain
litigation pending against KFBNY. One case, Noah Enterprises Ltd ("Noah") vs.
Korea First Bank of New York, filed in the Supreme Court of the State of New
York County of New York on October 21, 1999 arose in connection with KFBNY
granting a revolving credit line of $2.5MM to Noah with the loan being secured
by a UCC-1 filed by KFBNY. When KFBNY decreased Noah's revolving line from
$2.5MM to $1.0MM due to KFBNY's internal problems, the loan was restructured
with new documentation, except for the UCC-1 and Security Agreement. Noah
alleges that because the UCC-1 was not released, Noah was not able to obtain
financing from other institutions. Noah has sued KFBNY for $25MM for the
punitive and consequential damages resulting from the non-release.
The Bank also obtained full indemnification from the Korea Deposit
Insurance Corporation for all litigation up to $3.0 million plus 50%
indemnification for any amounts over $3.0 million. The Bank believes such
indemnification is sufficient to cover any potential liabilities
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is management's discussion and analysis of the major
factors that influenced the Bank's results of operations and financial condition
for the nine months and three months ended September 30, 2000. This analysis
should be read in conjunction with the Bank's Annual Report on Form 10-KSB for
the year ended December 31, 1999 and with the financial statements and notes as
set forth in this report.
FORWARD-LOOKING INFORMATION
Certain matters discussed in this report may constitute forward-looking
statements under Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act of 1934. There can be no assurance that the results
described or implied in such forward-looking statements will, in fact, be
achieved and actual results, performance, and achievements could differ
materially because the business of the Bank involves inherent risks and
uncertainties. Risks and uncertainties include possible future deteriorating
economic conditions in the Bank's areas of operation; interest rate risk
associated with volatile interest rates and related asset-liability matching
risk; liquidity risks; risk of significant non-earning assets, and net credit
losses that could occur, particularly in times of weak economic conditions or
times of rising interest rates; risks of available for sale securities declining
significantly in value as interest rates rise; and regulatory risks associated
with the variety of current and future regulations to which the Bank is subject.
For additional information concerning these factors, see "Item 1. Business -
Investment Considerations That May Affect Future Results" contained in the
Bank's Form 10-KSB for the year ended December 31, 1999.
ACQUISITION OF KOREA FIRST BANK OF NEW YORK
Effective February 25, 2000, the Bank completed its acquisition of Korea
First Bank of New York, a New York-chartered banking corporation ("KFBNY"),
pursuant to the Agreement and Plan of Reorganization dated as of November 9,
1999, between Nara, KFBNY and KFBNY's sole shareholder (the "Acquisition). The
Acquisition was accomplished by merging a federally chartered, non-insured
interim bank subsidiary of the Bank with and into KFBNY, followed immediately by
the merger of KFBNY into the Bank, for which the Bank paid $8,699,445 to the
Korea Deposit Insurance Corporation (the sole shareholder of KFBNY) for all of
the shares of stock of KFBNY, which were then canceled in connection with the
Acquisition.
The underlying assets acquired primarily included loans, cash, real
estate and bank premises and equipment, while the primary liabilities assumed
included deposit accounts and accrued liabilities related to the ongoing
business. The acquisition was accounted for as a purchase The purchase price of
$8,699,445 was paid in cash from the Bank's available capital reserves.
9
Prior to the date of the Acquisition, KFBNY was engaged in the business
of banking in the cities of Manhattan, Flushing and Jackson Heights, New York.
Currently, all three branches are operating at the same location.
CAPITAL OFFERING
On August 18, 2000, the Bank raised additional capital of $6,868,110
(net of expenses) through issuing 175,000 units, which one unit consisted of
four shares of common stock plus a fully vested, immediately exercisable warrant
to purchase an additional share of common stock. The warrant is a three year
warrant to purchase a share of common stock at a price of $11, if exercised
within one year, $12 if exercised after one and within two years, and $13 if
exercised after two and within three years, from the date of grant.
RESULTS OF OPERATION
The Bank's net income for the three months ended September 30, 2000 was
$2.8 million or $0.53 per diluted share compared to $1.0 million or $0.21 per
diluted share for the three months ended September 30, 1999. The net income for
the nine months ended September 30, 2000 was $8.1 million or $1.61 per diluted
share compared to $2.7 million or $0.55 per diluted share for the same period a
year ago. The increase in net income for 2000 as compared to 1999 was the result
of substantial improvement in the Bank's economies of scale generated by the
acquisition of KFBNY in February of 2000 and other expansion activities. The
annualized return on average assets was 2.4% for the first nine months of 2000
compared to a return on average assets of 1.2% for the same period in 1999, an
increase of 100.0%. The annualized return on average equity was 34.2% for the
first nine months of 2000, compared to an annualized return on average equity of
15.0% for the same period in 1999, an increase of 128.0%. This was due to 196.9%
increase in net income during nine months period of 2000 over same period of
1999.
NET INTEREST INCOME
The principal component of the Bank's earnings is net interest income,
which is the difference between the interest and fees earned on loans and
investments and the interest paid on deposits and other borrowed funds. When net
interest income is expressed as a percentage of average interest-earning assets,
the result is the net interest margin. The net interest spread is the yield on
average interest-earning assets less the average cost of interest-bearing
deposits and borrowed funds.
For the three months ended September 30, 2000, the Bank's net interest
income before provision for loan losses was $7.3 million. This represents an
increase of $2.9 million or 65.9 % over net interest income of $4.4 million for
the three months ended
10
September 30, 1999. The Bank's total interest income for the third quarter of
2000 increased $4.7 million or 73.4% to $11.1 million from $6.4 million in the
third quarter of 1999. This increase reflects the volume increase of
interest-earning assets from the KFBNY acquisition as well as from the Bank's
exiting branches prior to the acquisition. The Bank's interest expense on
deposits for the quarter ended September 30, 2000 also increased by
approximately $1.8 million or 85.0% to $3.8 million from $2.0 million for the
quarter ended September 30, 1999. This increase reflected an increase in the
average volume of interest-bearing liabilities. Average interest-bearing
liabilities were $291.2 million for the third quarter of 2000, which represented
an increase of $106.5 million or 57.7% from average interest-bearing liabilities
of $184.7 million for the third quarter of 1999. This increase was partly from
the KFBNY acquisition and also from the existing branches, especially mini
branches located in Torrance, Valley, Fullerton, and Glendale.
For the nine months ended September 30, 2000, the Bank's net interest
income before provision for loan losses was $19.3 million, which represents an
increase of $7.1 million or 58.2% over net interest income of $12.2 million for
the nine months ended September 30, 1999. Net interest margin increased to 6.6%
for the nine months ended September 30, 2000, from 6.2% for the same period in
1999. In addition, net interest spread increased to 4.9% for the nine months
ended September 30, 2000, from 4.7% for the same period in 1999. These increases
in net interest margin and spread are primarily due to the several rate hike by
Federal Reserve Bank during 2000 which increased the interest income on loans
that are tied to the prime.
The Bank's volume growth in interest-earning assets, achieved partly
from the KFBNY acquisition and also from internal growth, resulted in a 62.9%
increase in total interest income to $29.0 million for the nine months ended
September 30, 2000 from $17.8 million for the same period in 1999.
Interest-earning assets averaged $390.2 million for the nine months of 2000,
which represented an increase of $129.4 million or 49.6%, from $260.8 million
for the same period of 1999. The yield on average interest-earning assets
increased to 9.9% for the nine months ended September 30, 2000, from a yield of
9.1% for the nine months ended September 30, 1999. This is primarily due to
several increases in the Bank's prime rate during the year. Approximately 76.0%
of the Bank's net loans were variable rate loans tied to the prime rate at
September 30, 2000.
The Bank's interest expense on deposits for the nine months ended
September 30, 2000 increased by approximately $3.9 million or 69.6% to $9.5
million from $5.6 million for the nine months ended September 30, 1999. This
increase reflects an increase in the average volume of interest-bearing
liabilities. Average interest-bearing liabilities were $261.7 million for the
nine months of 2000, which represents an increase of $90.2 million 52.6% from
average interest-bearing liabilities of $171.5 million for the nine months of
1999. The cost of average interest-bearing liabilities increased to 5.0% for the
nine months ended September 30, 2000, compared to a cost of 4.4% for the same
period of 1999. Overall interest on deposits increased due to an increase in
time deposit rates.
11
The table below presents the average yield on each category of
interest-earning assets, average rate paid on each category of interest-bearing
liabilities, and the resulting interest rate spread and net yield on
interest-earning assets for periods indicated. All average balances are daily
average balances. The net loans in the table below also includes the
non-performing loans. The income and expenses are for the nine months period.
[Enlarge/Download Table]
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
-------------------------------------- ------------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE COST BALANCE EXPENSE COST
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
INTEREST EARNING ASSETS:
Net loans ............................... $292,411 $ 24,154 11.0% $197,985 $ 15,081 10.2%
Time deposit with others ................ 5,326 248 6.2% 2,530 114 6.0%
Securities .............................. 45,697 2,390 7.0% 19,116 1,038 7.2%
Federal funds sold ...................... 46,730 2,253 6.4% 41,165 1,608 5.2%
-------- -------- -------- -------- -------- --------
TOTAL INTEREST EARNING ASSETS $390,164 $ 29,045 9.9% $260,796 $ 17,841 9.1%
======== ======== ======== ======== ======== ========
INTEREST BEARING LIABILITIES:
Demand, interest-bearing ................ $ 53,998 1,495 3.7% $ 37,372 1,001 3.6%
Savings ................................. 42,304 1,046 3.3% 30,363 756 3.3%
Time certificates of deposit ........... 161,006 6,943 5.7% 103,474 3,866 5.0%
Subordinated notes ...................... 4,300 290 9.0% 115 8 9.5%
Other borrowings ........................ 84 4 6.3% 138 5 4.7%
-------- -------- -------- -------- -------- --------
TOTAL INTEREST BEARING LIABILITIES $261,692 $ 9,778 5.0% $171,462 $ 5,636 4.4%
======== ======== ======== ======== ======== ========
Net interest income ....................... $ 19,267 $ 12,205
Net interest spread ....................... 6.6% 6.2%
Average interest-earning assets
to average interest-bearing ......... 149.1% 152.1%
liabilities
The following table shows changes in interest income and interest
expense and the amount attributable to variations in interest rates and volumes
for the periods indicated. The variances attributable to simultaneous volume and
rate changes have been allocated to the change due to volume and the change due
to rate categories in proportion to the relationship of the absolute dollar
amount attributable solely to the change in volume and to the change in rate.
12
[Enlarge/Download Table]
SEPTEMBER 30, 2000 OVER SEPTEMBER 30, 1999
---------------------------------------------------
NET
INCREASES CHANGE DUE TO
--------- -----------------------------
RATE VOLUME
---------------------------------------------------
(DOLLARS IN THOUSANDS)
INTEREST INCOME:
Interest and fees on net loans ............... $ 9,074 $ 1,365 $ 7,709
Interest on time deposit with others ......... 134 4 130
Interest on securities ....................... 1,351 (37) 1,388
Interest on fed funds sold ................... 645 409 236
-------- -------- --------
TOTAL INTEREST INCOME ..................... $ 11,204 $ 1,741 $ 9,463
======== ======== ========
INTEREST EXPENSE
Interest on demand deposits .................. $ 494 $ 35 $ 459
Interest on savings .......................... 290 (6) 295
Interest on time certificates of
deposits ................................. 3,077 669 2,409
Interest on subordinated notes ................ 282 0 282
Interest on others ............................ (1) 0 (1)
-------- -------- --------
TOTAL INTEREST EXPENSE .................... $ 4,142 $ 698 $ 3,444
======== ======== ========
PROVISION FOR LOAN LOSSES
Management set a provision of $400,000 for loan losses during the third
quarter of 2000, compared to $615,000 for the same period in 1999. The provision
for loan losses for the nine months of 2000 was $400,000, compared to $1.9
million for the nine months of 1999. The Bank made this provision in August 2000
because of an identified high-risk exposure loan, which was deteriorating
rapidly. The Bank's management believes that the reserves were sufficient for
the inherent losses at September 30, 2000.
OTHER OPERATING INCOME
Other operating income includes revenues earned from sources other than
interest income and primarily comprised of service charges and fees on deposits
accounts, fees received from the letter of credit operations, and gain on sale
of SBA loans.
Other operating income increased $1.1 million or 52.4% to $3.2 million
for the three months ended September 30, 2000 from $2.1 million for the same
period in 1999. The service charge income increased approximately $0.6 million
or 66.7% to $1.5 million for the third quarter of 2000 from $0.9 million for the
same period in 1999. The increase was due to increase in transaction accounts
from all branches, including newly acquired New York branches. The fee income
generated by international transactions increased $205,000 or 41.2% to $703,000
for the third quarter of 2000 from $498,000 for
13
the same period in 1999. An increase in international transactions from the
Silicon Valley office and New York offices contributed much to this fee income.
Gain on sale of SBA loans decreased $72,000 or 37.1% during three months ended
September 30, 2000 to $122,000, compared to $194,000 during the same period in
1999. Bank's ALCO committee decided to retain all origination of SBA loans until
the further decision is made by the management to sell them again.
Other operating income increased $3.8 million or 64.4% to $9.7 million
for the nine months ended September 30, 2000 from $5.9 million for the same
period in 1999. The service charge income increased approximately $1.8 million
or 78.3% to $4.1 million for the nine months of 2000 from $2.4 million for the
same period in 1999. The increase was due to increases in transaction accounts
from the acquisition of KFBNY and internal growth. The fee income generated by
international transactions increased approximately $700,000 or 53.8% to $2.0
million for the nine months of 2000 from $1.3 million for the same period in
1999. An increase in international transactions generated from the Silicon
Valley and New York offices contributed much to this fee income. Gain on sale of
SBA loans remained at the same level compared to the previous year.
The breakdown of other operating income by category is reflected below:
[Enlarge/Download Table]
NINE MONTHS NINE MONTHS
ENDED INCREASE (DECREASE) ENDED
----------- ------------------------------ -----------
9/30/00 AMOUNT PERCENT (%) 9/30/99
----------- -------- ------------ -----------
(Dollars in thousands)
OTHER OPERATING INCOME
Service charges on deposits .............. $ 4,117 $ 1,767 75.2% $ 2,350
International service fee income ......... 2,007 697 53.3% 1,309
Wire transfer fees ....................... 598 286 91.4% 313
Service fee income from SBA .............. 513 47 10.0% 467
Earnings on cash surrender value ......... 200 7 3.5% 193
Lease income from Manhattan
Building .......................... 396 396 100.0% 0
Loan servicing fee income ................ 150 150 100.0% 0
Gain on sale of SBA loans ................ 683 (11) -1.6% 695
Gain on sale of building and
Fixed assets ...................... 389 389 100.0% 0
Others ................................... 668 131 24.5% 535
TOTAL OTHER OPERATING INCOME ............... $ 9,721 $ 3,858 65.8% $ 5,862
======= ======= ======= =======
14
OTHER OPERATING EXPENSES
Non-interest expenses for the third quarter of 2000 increased
approximately $2.1 million or 51.2% to $6.2 million from $4.1 million for the
same period in 1999. This increase was due to internal growth, mainly increases
in employees and premises. Salaries and employee benefits expenses for the third
quarter of 2000 increased $1.3 million or 65.0% to $3.3 million from $2.0
million for the same period in 1999. This increase was primarily due to expenses
associated with additional employees added as a result of the KFBNY acquisition.
The occupancy and equipment expenses for the second quarter of 2000 increased
approximately $0.7 million or 71.4% to $1.2 million from $0.6 million for the
same period in 1999. This increase is also a result of the Bank's recent
acquisition and expansion.
Other operating expenses for the nine months of 2000 increased
approximately $4.8 million or 41.4% to $16.4 million from $11.6 million for the
same period in 1999. This increase was primarily due to expenses incurred from
the acquisition and partly internal growth. Salaries and employee benefit
expenses for the nine months of 2000 increased $2.8 million or 49.1% to $8.5
million from $5.7 million for the same period in 1999. This increase was
primarily due to expenses associated with additional employees added as a
results of the KFBNY acquisition. The occupancy and equipment expenses for the
nine months of 2000 also increased approximately $1.2 million or 62.9% to $3.2
million from $2.0 million for the same period in 1999. This increase is also a
result of the Bank's recent acquisition and expansion.
The breakdown on other operating expenses is reflected below:
[Enlarge/Download Table]
NINE MONTHS NINE MONTHS
ENDED INCREASE (DECREASE) ENDED
----------- ----------------------------- -----------
9/30/00 AMOUNT PERCENT (%) 9/30/99
----------- ------- ----------- -----------
(Dollars in thousands)
OTHER OPERATING EXPENSE
Salaries and benefits ...................... $ 8,538 $ 2,876 50.8% $ 5,661
Net occupancy .............................. 2,483 1,058 74.2% 1,425
Furniture and equipment .................... 736 185 33.6% 551
Advertising & marketing related ............ 564 96 20.6% 468
Regulatory & banking fees* ................. 284 103 56.9% 181
Communications ............................. 241 66 37.4% 176
Data processing ............................ 1,128 (87) -7.2% 1,216
Professional fees .......................... 763 198 35.0% 565
Office supplies & forms .................... 283 49 20.9% 234
Directors' fees ............................ 225 3 1.2% 222
Credit related expenses** .................. 320 (175) -35.4% 495
Amortization of goodwill ................... 150 0 0.0% 150
Others ..................................... 656 404 159.8% 253
TOTAL OTHER OPERATING EXPENSE: ................ $16,371 $ 4,775 41.2% $11,597
======= ======= ======= =======
* Includes OCC, FDIC, NY State Banking, Correspondent Banking, and other stock
related fees
** Includes legal, collection, credit report, appraisal, title, search fees
15
FINANCIAL CONDITION
SUMMARY OF CHANGES IN BALANCE SHEETS AT SEPTEMBER 30, 2000 COMPARED TO DECEMBER
31, 1999
At September 30, 2000, the Bank's total assets increased $169.8 million
or 47.3% to $528.7 million from $358.9 million at December 31, 1999. Gross
loans, net of unearned loan fees, totaled $350.0 million at September 30, 2000,
which represents an increase of $111.1 million or 46.5% from $238.9 million at
December 31, 1999. Total deposits also increased $ 153.0 million or 47.8% to
$472.9 million at September 30, 2000 from $319.9 million at December 31, 2000.
Approximately $75.0 million or 49% of the increase in assets came from the
acquisition of KFBNY. The remaining portion of the increase was from the
internal growth from the existing branches as well as the acquired New York
branches.
INVESTMENT SECURITY PORTFOLIO
At September 30, 2000, the Bank classified its securities as
held-to-maturity or available-for-sale under FASB 115. Those securities that the
Bank has the ability and intent to hold to maturity are classified as
"held-to-maturity securities". All other securities are classified as
"available-for-sale". The Bank owned no trading securities at September 30, 2000
nor did the Bank hold any derivative financial instruments. Held-to-maturity
securities are stated at cost, adjusted for amortization of premiums and
accretion of discounts. Available-for-sale securities are stated at fair value.
Unrealized gains and losses are reported as a separate component of
stockholders' equity as accumulated other comprehensive income. The securities
currently held by the Bank are government-sponsored agency bonds, corporate
bonds, and collateralized mortgage obligations, which were transferred from
KFBNY to the Bank upon completion of the acquisition.
As of September 30, 2000, held-to-maturity securities totaled $17.4
million and available-for-sale securities totaled $34.7 million, compared to
$17.3 million and $16.0 million, respectively at December 31, 1999. Of the
securities, the amortized cost of $4.2 million was pledged to secure public
deposits and for other purposes as required or permitted by law at September 30,
2000.
16
[Enlarge/Download Table]
AT SEPTEMBER 30, 2000
-------------------------------------------------------------------
AMORTIZED MARKET UNREALIZED UNREALIZED
COST VALUE GAIN LOSS
--------- ------- ---------- ----------
(Dollars in thousands)
HELD-TO-MATURITY
U.S. Government Securities ............... $14,963 $14,279 $ -- 9$684)
U.S. Corporate Notes ..................... 2,663 2,344 -- (319)
------- ------- ------- -------
TOTAL HELD-TO-MATURITY ............... $17,626 $16,623 $ -- $(1,003)
AVAILABLE-FOR-SALE
U.S. Government Securities ............... $16,052 $15,979 $ -- $ (73)
Collaterized Mortgage Obligation ......... 9,825 9,652 -- (173)
U.S. Corporate Notes ..................... 7,320 7,360 40 --
Korean Corporate Notes ................... 1,719 1,744 25 --
------- ------- ------- -------
TOTAL AVAILABLE-FOR-SALE ............ $34,916 $34,735 $ 65 $ (246)
TOTAL INVESTMENT PORTFOLIO .................. $52,542 $51,358 $ 65 $(1,249)
======= ======= ======= =======
[Enlarge/Download Table]
SEPTEMBER 30, 2000
------------------------------------------------
WEIGHTED
AMORTIZED MARKET AVERAGE
HELD-TO-MATURITY COST VALUE YIELD
--------- ------- --------
(Dollars in thousands)
U.S. Government:
Due within one year .................... $ -- $ -- --
One to five years ...................... 9,491 9,359 6.23%
Five to ten years ...................... -- -- --
After ten years ........................ 5,472 4,920 7.71%
U.S. Corporate Notes
Due within one year .................... -- -- --
One to five years ...................... -- -- --
Five to ten years ...................... 2,003 1,931 7.07%
After ten years ........................ 660 413 7.48%
------- -------
TOTAL HELD-TO-MATURITY ........... $17,626 $16,623
AVAILABLE FOR SALE
U.S. Government:
Due within one year .................... $ 4,000 $ 4,010 7.04%
One to five years ...................... 7,052 7,036 6.71%
Five to ten years ...................... 4,500 4,443 7.15%
After ten years ........................ 500 490 8.00%
Collaterized Mortgage Obligation:
Due within one year .................... -- -- --
One to five years ...................... -- -- --
Five to ten years ...................... 1,181 1,174 6.70%
After ten years ........................ 8,643 8,477 7.00%
U.S. Corporate Notes
Due within one year .................... 300 303 9.07%
One to five years ...................... 5,793 5,854 7.76%
Five to ten years ...................... 1,975 1,955 7.24%
After ten years ........................ 972 993 7.23%
------- -------
TOTAL AVAILABLE-FOR-SALE ........... $34,916 $34,735
TOTAL INVESTMENT PORTFOLIO ................... $52,542 $51,358 7.03%
======= ======= =======
17
LOAN PORTFOLIO
The Bank carries all loans other than certain SBA loans held-for-sale,
at face amount, less payments collected, net of deferred loan origination fees
and the allowance for possible loan losses. SBA loans held-for-sale are carried
at the lower of cost or market. Interest on all loans is accrued daily on a
simple interest basis. Once a loan is placed on non-accrual status, accrual of
interest is discontinued and previously accrued interest is reversed. Loans are
placed on a non-accrual status when principal and interest on a loan is past due
90 days or more, unless a loan is both well-secured and in process of
collection.
The Bank's net loans were $339.5 million at September 30, 2000. This
represented an increase of $104.2 million or 44.3% over net loans of $235.3
million at December 31, 1999. Approximately $30.8 million or 29.6% of the total
increase in net loans was attributable to the acquisition of KFBNY.
Total commercial loans, comprised of domestic commercial, international
loans, SBA commercial loans and equipment financing, at September 30, 2000, were
approximately $134.4 million, which represented an increase of $34.0 million or
33.9% from $100.4 million at December 31, 1999. Real estate and construction
loans, comprised of commercial and SBA real estate loans were 172.0 million,
which represented an increase of $68.7 million or 66.5% from $103.3 million at
December 31, 2000. By loan category, international trade finance loans, at
September 30, 2000, totaled $31.5 million, which represented an increase of $
7.9 million or 33.5% from $23.6 million at December 31, 1999. Small Business
Administration loans (SBA loans) increased $27.3 million or 83.5% during the
first nine of 2000 to $60.0 million from $32.7 million at December 31, 1999.
This large increase is due to the retention of significant number of SBA loans
rather than sell them to secondary markets.
The following table shows the Bank's loan composition by type:
[Enlarge/Download Table]
SEPTEMBER 30, 2000 DECEMBER 31, 1999
---------------------------- ---------------------------
AMOUNT PERCENT AMOUNT PERCENT
---------- ---------- ---------- ----------
(Dollars in thousands)
LOAN PORTFOLIO COMPOSITION:
Commercial loans* .......................... $ 134,421 38.4% $ 100,411 42.0%
Real estate and construction loans* ........ 172,022 49.2% 103,311 43.2%
Consumer loans ............................. 43,507 12.4% 35,295 14.8%
---------- ---------- ---------- ----------
Total loans outstanding ................ 349,950 100.0% 239,017 100.0%
Unamortized loan fees, net of costs ........ (261) (86)
Less: Allowance for Loan Losses ........... (10,183) (3,644)
---------- ----------
NET LOANS RECEIVABLE .......................... $ 339,506 $ 235,287
========== ==========
18
* Includes loans held-for-sale
At September 30, 2000, the Bank's nonperforming assets (nonaccrual
loans, loans 90 days or more past due and still accruing interest, restructured
loans, and other real estate owned) totaled $3.6 million. This represented an
increase of $2.0 million or 125.0% from non-performing assets of $1.6 million at
December 31, 1999. As a percentage of total assets, nonperforming assets
increased to 0.19% at September 30, 2000, from 0.44 % at December 31, 1999. The
following table shows the composition of the Bank's nonperforming assets as of
the dates indicated.
[Enlarge/Download Table]
SEPT 30, 2000 DECEMBER 31, 1999
------------- -----------------
(DOLLARS IN THOUSANDS)
Nonaccrual loans ...................................... $2,366 $1,523
Loan past due 90 days or more, still accruing ......... 1,049 --
Restructured loans
TOTAL NONPERFORMING LOANS .......................... 3,415 1,523
------ ------
Other real estate owned ............................... 195 44
TOTAL NONPERFORMING ASSETS .......................... $3,610 $1,567
====== ======
ALLOWANCE AND PROVISION FOR LOAN LOSSES
The allowance for loan losses represents the amounts that the Bank has
set aside for the specific purpose of absorbing losses that may occur in the
Bank's loan portfolio. The provision for loan losses is an expense charged
against operating income and added to the allowance for loan losses. Management
of the Bank continues to carefully monitor the allowance for loan losses in
relation to the size of the Bank's loan portfolio and known risks or problem
loans.
The allowance for loan losses was $10.2 million at September 30, 2000,
compared to $3.6 million at December 31, 1999. The allowance for loan losses was
2.91% of gross loans at September 30, 2000 compared to 1.52% at December 31,
1999. Approximately $3.5 million in KFBNY loans were charged off after the
closing of the acquisition due to the non-performing status of those loans at
the time of the acquisition. During the past months, the Bank was able to
recover $1.5 million of those loans that were charged off after the acquisition
and $1.6 million of those loans that were charged off by KFBNY prior to the
acquisition. Management believes the level of allowance as of September 30, 2000
is adequate to absorb losses inherent in the loan portfolio.
The following table shows the provisions made for loan losses, the
amount of loans charged off, the recoveries on loans previously charged off
together with the balance in the allowance for loan losses at the beginning and
end of each period, the amount of average and total loans outstanding, and other
pertinent ratios as of the dates and for the periods indicated:
19
[Enlarge/Download Table]
SEPT 30, 2000 DECEMBER 31, 1999
------------- -----------------
(UNAUDITED) (AUDITED)
(DOLLARS IN THOUSANDS)
LOANS:
Average total loans ........................................ $ 300,379 $ 208,895
Total loans at end of period ............................... 349,689 239,017
ALLOWANCE:
BALANCE - BEGINNING OF PERIOD .............................. $ 3,644 $ 2,961
Loans charged off:
Commercial ............................................ 5,070 2,785
Consumer .............................................. 138 154
Real estate ........................................... 52 --
--------- ---------
Total loans charged off ............................ (5,260) (2,939)
Less: Recoveries on loan previous charged off
Commercial ............................................. 1,942 151
Consumer ............................................... 161 76
Real estate ............................................ 1,418 --
--------- ---------
Total recoveries ................................... 3,521 227
Net loan charged-off ....................................... (1,739) (2,712)
Provision for loan losses .................................. 400 3,395
Allowance transferred with business acquisition ............ 7,878 --
--------- ---------
BALANCE - END OF PERIOD .................................... $ 10,183 $ 3,644
========= =========
RATIO
Net loan charge-offs to average total loans ................. 0.58% 1.30%
Net loan charge-offs to total loans at end of period ........ 0.50% 1.13%
Allowance for loan losses to average total loans ............ 3.39% 1.74%
Allowance for loan losses to total loans at end of period ... 2.91% 1.52%
Net loan charge-offs to beginning allowance ................. 47.72% 91.59%
Net loan charge-offs to provision for loan losses ........... 434.75% 79.88%
DEPOSITS AND OTHER BORROWINGS
At September 30, 2000, the Bank's total deposits were $472.8 million.
This represents an increase of $152.9 million or 47.8%, from total deposits of
$319.9 million at December 31, 1999. Approximately $67.2 million or 44.0% of the
total increase is attributable to the three newly acquired branches of KFBNY,
and the remaining increase is attributable to internal growth. Demand deposits
totaled $170.1 million, representing an increase of approximately $54.5 million
or 47.1% from total demand deposits of $115.6 million at December 31, 1999.
Approximately $30.7 million or 56.3% of total increase in demand deposits is
associated with the KFBNY transaction.
Time deposits over $100,000 totaled $117.8 million at September 30,
2000. This represents an increase of approximately $41.2 million or 53.8%,
compared to $76.6
20
million at December 31, 1999. The acquisition of KFBNY accounts for $9.6 million
of such increase. Other time deposits increased approximately $22.3 million or
43.1% to $74.1 million at September 30, 2000, of which approximately $8.7
million is attributable to the newly acquired KFBNY branches.
On September 30, 1999, the Bank issued five-year subordinated capital
notes in the aggregate amount of $4.3 million with a stated interest rate of
9.0%, maturing on September 30, 2004. Interest on the notes is payable quarterly
and no scheduled payments of principal are due prior to maturity. At September
30, 2000, $3.4 million, which represents 80% of the total outstanding amount of
the notes, qualified as risk-based Tier 2 capital.
SHAREHOLDERS' EQUITY AND REGULATORY CAPITAL
In order to ensure adequate levels of capital, the Bank conducts an
ongoing assessment of projected sources and uses of capital in conjunction with
projected increases in assets and levels of risk. Management considers, among
other things, on an ongoing basis, cash generated from operations, access to
capital from financial markets or the issuance of additional securities,
including common stock or notes, to meet the Bank's capital needs. Total
shareholders' equity was $41.7 million at September 30, 2000. This represents an
increase of $15.0 million or 56.2% over total shareholders' equity of $26.7
million at December 31, 1999.
During August of 2000, the Bank raised an additional $6.8 million, net
of total proceeds of $7.0 million, through issuing 175,000 units, which
consisted of four shares of common stocks plus a warrant to purchase an
additional share of common stock within three years.
For the Bank to be categorized as "well-capitalized" for regulatory
purposes, the minimum ratios of leverage, tier 1 risk-based, and total
risk-based must be 5%, 6%, and 10%, respectively. The Bank's current capital
levels exceed the minimum regulatory requirement for a well-capitalized
institution as further discussed below.
The federal banking agencies require a minimum ratio of qualifying total
capital to risk-adjusted assets of 8% and a minimum ratio of Tier 1 capital to
risk-adjusted assets of 4%. In addition to the risk-based guidelines, federal
banking regulators require banking organizations to maintain a minimum amount of
Tier 1 capital to total assets, referred to as the leverage ratio. For a banking
organization rated in the highest of the five categories used by regulators to
rate banking organizations, the minimum leverage ratio of Tier 1 capital to
total assets must be 4%. In addition to these uniform risk-based capital
guidelines and leverage ratios that apply across the industry, the regulators
have the discretion to set individual minimum capital requirements for specific
institutions at rates significantly above the minimum guidelines and ratios.
At September 30, 2000, Tier 1 capital, shareholders' equity less
intangible assets, was $40.3 million. This represented an increase of $15.1
million or 60.0% over total Tier
21
1 capital of $25.2 million at December 31, 1999. At September 30, 2000, the Bank
had a ratio of total capital to total risk-weighted assets of 12.28% and a ratio
of Tier 1 capital to total risk weighted assets of 10.16%. The Tier 1 leverage
ratio was 7.98% at September 30, 2000.
The following table presents the amounts of regulatory capital and the
capital ratios for the Bank, compared to its minimum regulatory capital
requirements as of September 30, 2000.
[Enlarge/Download Table]
AS OF SEPTEMBER 30, 2000 (DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------
ACTUAL REQUIRED EXCESS
---------------------- ---------------------- ----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ------ ------- ----- ------- -----
Leverage ratio .................. $40,300 7.98% $20,201 4.0% $20,099 3.98%
Tier 1 risk-based ratio ......... $40,300 10.16% $15,866 4.0% $24,434 6.16%
Total risk-based ratio .......... $47,902 12.28% $35,206 8.0% $12,696 4.28%
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
GENERAL
Market risk is the risk of loss to future earnings, to fair values, or
to future cash flow that may result from changes in the price of a financial
instrument. The value of a financial instrument may change as a result of
changes in interest rates, foreign currency exchange rates, commodity prices,
equity prices, and other market changes that affect market risk sensitive
instruments. Market risk is attributed to all market risk sensitive financial
instruments, including securities, loans, deposits, and borrowings, as well as
derivative instruments. The Bank's exposure to market risk is a function of its
asset and liability management activities and other role as a financial
intermediary in customer-related transactions. The objective of market risk
management is to avoid excessive exposure of our earnings and equity to loss and
to reduce the volatility inherent in certain financial instruments.
The management of market risk is governed by policies reviewed and
approved annually by the Board of Directors ("Board"). The Board delegates
responsibility for market risk management to the Asset and Liability Management
Committee (ALCO), which is composed of Bank's senior executives and other
designated officers. ALCO makes changes in the mix of assets and liabilities.
ALCO also reviews and approves market risk-management programs and market risk
limits
LIQUIDITY AND INTEREST RATE SENSITIVITY
Liquidity risk is the risk to earnings or capital resulting from the
Bank's inability to meet its obligations when they come due without incurring
unacceptable losses.
22
Liquidity risk includes the ability to manage unplanned decreases or changes in
funding sources and to recognize or address changes in market conditions that
affect the Bank's ability to liquidate assets quickly and with a minimum loss of
value. Factors considered in liquidity risk management are stability of the
deposit base, marketability, maturity, and pledging of investments, and demand
for credit.
In general, the Bank manages liquidity risk daily by controlling the
level of federal funds and the use of funds provided by the cash flow from the
investment portfolio. To meet unexpected demands, lines of credit are maintained
with correspondent banks and the Federal Reserve Bank. The sale of securities
available-for-sale also can also serve as a contingent source of funds.
Increases in deposit rates are considered a last resort as a means of raising
funds to increase liquidity.
The Bank's liquid assets include cash and cash equivalents,
interest-bearing deposits in correspondent banks, federal funds sold and
securities available-for-sale. The aggregate of these assets totaled $133.5
million at September 30, 2000, compared to $79.8 million at December 31, 1999.
Because the primary sources and uses of funds are loans and deposits,
the relationship between gross loans and deposits provides a useful measure of
the Bank's liquidity. Typically, the closer the ratio of loans to deposits is to
100%, the more reliant the Bank becomes on its loan portfolio to provide for
short- term liquidity needs. Because repayment of loans tends to be less
predictable than the maturity of investments and other liquid resources, the
higher the loan to deposit ratio, the less liquid are the Bank's assets. For the
nine months ended September 30, 2000, the Bank's net loan to deposit ratio
averaged 71.9%, compared to an average ratio of 75.7% for the same period in
1999.
The Bank is engaged in asset and liability management activities with
the objective of reducing adverse changes in earnings as a result of changes in
interest rates. The management of interest rate risk relates to the timing and
magnitude of the repricing of assets compared to liabilities and has the control
of risks associated with movements in interest rates.
The ALCO meets monthly to monitor the interest rate risk and may direct
changes in the composition of the bank's balance sheet. The Bank's balance sheet
is inherently asset sensitive, which means that assets generally reprice more
often than liabilities. Because an asset-sensitive balance sheet tends to reduce
net interest income when interest rates decline and to increase net interest
income when interest rate rise, careful forecast of interest rate and security
portfolio changes are used to manage the interest rate risk.
The Bank currently uses the interest rate gap to measure interest rate
risk. It is the difference between interest-earning assets and interest-bearing
liabilities maturing or repricing within specified periods. The gap analysis
presented below indicates that assets that are rate sensitive within one year
exceeded liabilities within that same period by
23
$65.9 million at September 30, 2000. The following table shows the Bank's gap
position as of September 30, 2000.
[Enlarge/Download Table]
0-90 DAYS 91-365 DAYS 1-3 YEARS OVER 3 YRS TOTAL
--------- ----------- --------- ---------- ---------
(Dollars in thousands)
INVESTMENTS:
Federal funds sold .................. $ 63,100 -- -- -- $ 63,100
Due from time deposit ............... -- 4,024 289 1,433 5,745
Investment securities ............... -- 4,300 17,189 31,053 52,541
FRB stock ........................... -- -- -- 667 667
Total Investments ................. 63,100 8,324 17,478 33,153 122,053
LOANS:
Term fed funds ..................... 10,000 -- -- -- 10,000
Commercial Variable ................. 247,182 10,205 616 386 258,390
Commercial Fixed .................... 6,973 2,233 9,508 16,830 35,544
Equipment Leasing ................... -- 410 1,396 2,096 3,902
Consumer Variable ................... 7,228 -- -- -- 7,228
Consumer Fixed ...................... 520 1,951 11,485 20,931 34,887
Total Loans: ...................... 271,903 14,799 23,005 40,243 349,951
RATE SENSITIVE ASSETS: ................. $ 335,003 $ 23,123 $ 40,483 $ 73,394 $ 472,004
========= ========= ========= ========= =========
DEPOSITS:
Time certificate of ................. $ 55,160 $ 61,625 $ 916 $ 108 $ 117,809
deposit
$100,000 or more
Time certificate of deposit ......... 29,281 43,474 1,322 -- 74,077
Under $100,000
Money market ........................ 55,443 -- -- -- 55,443
Now account ......................... 9,239 -- -- -- 9,239
Savings Accounts .................... 34,658 3,309 5,286 2,859 46,112
OTHER LIABILITIES:
Subordinated notes .................. -- -- -- 4,300 4,300
RATE SENSITIVE LIABILITIES: ............ $ 183,781 $ 108,408 7,524 7,267 $ 306,980
========= ========= ========= ========= =========
Net gap position ....................... 151,222 (85,285) 32,959 66,127
Net cumulative gap position ............ 151,222 65,937 98,896 165,023
Periodic gap/assets .................... 28.6% -16.1% 6.2% 12.5%
Cumulative gap/assets .................. 28.6% 12.5% 18.7% 31.2%
24
PART II
ITEM 1 LEGAL PROCEEDINGS
The Bank is a party to routine litigation incidental to its business,
none of which is considered likely to have a materially adverse effect on the
Bank. Neither the Bank nor any of its property is subject to any material
pending legal proceedings except as described below.
In connection with the acquisition of KFBNY, the Bank assumed certain
litigation pending against KFBNY. One case, Noah Enterprises Ltd ("Noah") vs.
Korea First Bank of New York, filed in the Supreme Court of the State of New
York County of New York on October 21, 1999 arose in connection with KFBNY
granting a revolving credit line of $2.5MM to Noah with the loan being secured
by a UCC-1 filed by KFBNY. When KFBNY decreased Noah's revolving line from
$2.5MM to $1.0MM due to KFBNY's internal problems, the loan was restructured
with new documentation, except for the UCC-1 and Security Agreement. Noah
alleges that because the UCC-1 was not released, Noah was not able to obtain
financing from other institutions. Noah has sued KFBNY for $25MM for the
punitive and consequential damages resulting from the non-release.
The Bank also obtained full indemnification from the Korea Deposit
Insurance Corporation for all litigation up to $3.0 million plus 50%
indemnification for any amounts over $3.0 million. The Bank believes such
indemnification is sufficient to cover any potential liabilities
ITEM 2 CHANGES IN SECURITIES
None
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
25
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders (the "Meeting") of the Bank was held
on August 16, 2000 for the purpose of considering and voting upon the following
matters:
1 Election of six persons to serve on the Board of Directors until
the next annual meeting and when their successors are elected
and qualified:
2. Approval of the 2000 Long Term Incentive Plan, a new equity
incentive plan for the Bank's directors and officers:
3. Ratification of the appointment of Deloittee & Touche LLP as the
Company's independent accountants for the fiscal year ending
December 31, 2000; and
4. Transaction of such other business as many properly come before
the meeting and at any and all adjournment thereof.
The following table presents the names of directors elected at the
Meeting, as well as the number of votes cast for, votes cast against or
withheld, and abstentions or nonvotes for each of the directors nominated. A
total of 2,849,972 shares, or 59.92% of eligible shares, were represented at the
Meeting.
[Download Table]
NAME VOTES FOR VOTES AGAINST ABSTAINING
-------------------------- --------- ------------- ----------
Thomas Chung ............. 2,802,584 0 47,388
Benjamin B. Hong ......... 2,829,465 0 20,507
Chang H. Kim ............. 2,802,584 0 47,388
Yong H. Kim .............. 2,802,584 0 47,388
Hyon M. Park ............. 2,802,584 0 47,388
Brian B. Woo ............. 2,802,834 0 49,138
The 2000 Long Term Incentive plan was approved, with a total of
2,642,033 votes cast for, 190,100 votes against, and 17,389 abstentions or
nonvotes. The affirmative vote of a majority of the common stock having voting
power was require for approval.
The ratification of the appointment of Deloitte & Touche LLP as
independent auditors for the fiscal year ending December 31, 2000 was approved
with a total of 2,821,053 votes cast for, 4,315 votes against, and 26,404
abstentions or nonvotes.
There were no other matters brought before the Meeting that required a
vote by shareholders.
26
ITEM 5 OTHER INFORMATION
Inapplicable
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
[Download Table]
Exhibit No. Description
----------- -----------
2.1 Plan of Reorganization and Merger Agreement attached as Appendix
II to the Proxy Statement/Prospectus included in Part I, is
incorporated herein by reference.
3.1 Certificate of Incorporation of Nara Bancorp, Inc., attached as
Appendix III to the Proxy Statement/Prospectus included in Part
I, is incorporated herein by reference.
3.2 Bylaws of Nara Bancorp, Inc., attached as Appendix IV to the
Proxy Statement/ Prospectus included in Part I, are incorporated
herein by reference.
4.1 Form of Stock Certificate of Nara Bancorp, Inc.*
5.1 Opinion of Manatt, Phelps & Phillips LLP
8.1 Tax Opinion of Manatt, Phelps & Phillips LLP*
10.1 Nara Bank, N. A. 2000 Long Term Incentive Plan*
10.2 Nara Bank, N.A. 1989 Stock Option Plan*
10.3 Nara Bank, N.A. Deferred Compensation Plan*
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Manatt, Phelps & Phillips, LLP (included in Exhibits
5.1 and 8.1)
24.1 Power of Attorney (included in the signature page of Part II
hereof)
99.1 Form of Proxy.*
----------------
* to be filed by amendment
(b) Reports on Form 8-K
None
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Nara Bank, N.A.
Date: November 14, 2000 By /s/ Bon T. Goo
------------------------------------------
Bon T. Goo
Chief Financial Officer
(Principal financial or accounting officer
and duly authorized signatory)
29
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Nara Bancorp's certificate of incorporation provides for
indemnification of any and all directors and officers under Section 145 of the
Delaware General Corporation Law.
Nara Bancorp's bylaws provide that each person who was or is
made a party or is threatened to be made a party to any action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of Nara Bancorp, is or was
serving at the request of the Nara Bancorp as a director or officer of another
corporation or of a partnership, joint venture, trust or other enterprise
(including service with respect to employee benefit plans), or was a director or
officer of a foreign or domestic corporation which was a predecessor of the Nara
Bancorp of any other enterprise at the request of such predecessor corporation,
whether the basis of such proceeding is alleged action in an official capacity
as a director or officer or in any other capacity while serving as a director or
officer shall be indemnified and held harmless by Nara Bancorp to the fullest
extent authorized by the Delaware General Corporation Law (the "DGCL"), as such
law may hereafter be amended, but only to the extent that such amendment permits
broader indemnification rights than were permitted to Nara Bancorp prior to such
amendment, against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be in
settlement) reasonably incurred or suffered by such person in connection
therewith. This indemnification continues as to a person who has ceased to be a
director or officer and inures to the benefit of his or her heirs, executors and
administrators.
Nara Bancorp is required to indemnify any such person seeking
indemnification in connection with a proceeding initiated by such person only if
such proceeding was authorized by the Board of Directors of Nara Bancorp. The
right to indemnification conferred in Nara Bancorp's bylaws is a contract right
and includes the right to be paid by Nara Bancorp expenses incurred in defending
any such proceeding in advance of its final disposition provided Nara Bancorp
has received an undertaking, by or on behalf of such director or officer, to
repay all amounts so advanced if it shall ultimately be determined that such
director or officer is entitled to be indemnified under the bylaws or otherwise.
Pursuant to its bylaws, Nara Bancorp may provide, by action of the Board of
Directors, indemnification to its employees and agents to the same extent that
it indemnifies directors and officers. Nara Bancorp's bylaws create a right to
indemnification for each indemnifiable party whether or not the proceeding to
which the indemnification relates arose in whole or in part prior to adoption of
the bylaws (or the adoption of the comparable provisions of the Nara Bank's
bylaws).
The rights of indemnification provided in Nara Bancorp's bylaws
are not exclusive of any other rights which may be available under Delaware law,
any insurance or other agreement, by vote of shareholders or disinterested
directors or otherwise. In addition, Nara Bancorp's bylaws authorize Nara
Bancorp to maintain insurance on behalf of any person who is
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or was a director, officer, employee or agent of Nara Bancorp, whether or not
Nara Bancorp would have the power to provide indemnification to such person
under Delaware law.
Under Delaware law, Nara Bancorp officers and directors have a
fiduciary duty of good faith, fairness and loyalty in handling the company's
affairs. Nara Bancorp's Certificate of Incorporation relieves Nora Bancorp's
directors from monetary damages to Nara Bancorp and its shareholders for a
breach of the director's fiduciary duty as a director. This provision does not
relieve Nara Bancorp directors from monetary damages to Nara Bancorp or its
shareholders: (i) for a breach of the duty of loyalty; (ii) for failure to act
in good faith; (iii) for intentional misconduct or knowing violation of law;
(iv) for willful or negligent violations of certain provisions of the DGCL
imposing certain requirements with respect to stock repurchases, redemptions and
dividends; or (v) for any transactions from which the director derived an
improper personal benefit.
To the extent that indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers or persons
controlling Nara Bancorp, pursuant to the foregoing provisions or otherwise,
Nara Bancorp understands that, in the opinion of the Commission, such
indemnification is against public policy as expressed in the Securities Exchange
Act and is therefore unenforceable. If a claim for indemnification against such
liabilities (other than the payment by Nara Bancorp of expenses incurred or paid
by a director, officer or controlling person of Nara Bancorp in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, Nara
Bancorp will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against a public policy as
expressed in the Securities Exchange Act and will be governed by the final
adjudication of such issue.
ITEM 21. EXHIBITS
[Download Table]
Exhibit No. Exhibit
----------- -------
2.1 Plan of Reorganization and Merger Agreement attached as Appendix
II to the Proxy Statement/Prospectus included in Part I, is
incorporated herein by reference.
3.1 Certificate of Incorporation of Nara Bancorp, Inc., attached as
Appendix III to the Proxy Statement/Prospectus included in Part
I, is incorporated herein by reference.
3.2 Bylaws of Nara Bancorp, Inc., attached as Appendix IV to the
Proxy Statement/Prospectus included in Part I, are incorporated
herein by reference.
4.1 Form of Stock Certificate of Nara Bancorp, Inc.
5.1 Opinion of Manatt, Phelps & Phillips LLP
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[Download Table]
8.1 Tax Opinion of Manatt, Phelps & Phillips, LLP
10.1 Nara Bank, N. A. 2000 Long Term Incentive Plan*
10.2 Nara Bank, N.A. 1989 Stock Option Plan
23.1 Consent of Deloitte & Touche LLP*
23.2 Consent of Manatt, Phelps & Phillips, LLP (included in Exhibits
5.1 and 8.1)
24.1 Power of Attorney (included in the signature page of Part II
hereof)
99.1 Form of Proxy
* Previously filed with the Registration Statement on Form S-4 dated November
16, 2000, Registration No. 333-50126
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes as follows:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(a) to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933, as amended (the "Securities Act");
(b) to reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement; and
(c) to include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings
II-3
by persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(5) That every prospectus (i) that is filed pursuant to paragraph (4)
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Securities Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to this
Registration statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(6) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions of this Item 22, or
otherwise, the registrant has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of such registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(7) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
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SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Los Angeles, California,
on December 5, 2000.
NARA BANCORP, INC.
By: /s/ Benjamin B. Hong
-------------------------------------
Benjamin B. Hong
President and Chief Executive Officer
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POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
Benjamin B. Hong as his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any or all Amendments (including
Post-Effective Amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
[Enlarge/Download Table]
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Benjamin B. Hong President and Chief Executive December 5, 2000
---------------------------------- Officer
BENJAMIN B. HONG (Principal Executive Officer)
/s/ Bon T. Goo Executive Vice President, and December 5, 2000
---------------------------------- Chief Financial Officer
BON T. GOO (Principal Financial and
Accounting Officer)
/s/ Min J. Kim Executive Vice President, and December 5, 2000
---------------------------------- Chief Credit Officer
MIN J. KIM
/s/ Chang Hee Kim Director December 5, 2000
----------------------------------
CHANG HEE KIM
/s/ Hyon Park Director December 5, 2000
----------------------------------
HYON PARK
/s/ Thomas Chung Director December 5, 2000
----------------------------------
THOMAS CHUNG
/s/ Brian Woo Director December 5, 2000
----------------------------------
BRIAN WOO
/s/ Yong Hwan Kim
----------------------------------
YONG HWAN KIM Director December 5, 2000
II-6
EXHIBIT INDEX
[Download Table]
Exhibit No. Exhibit
----------- -------
2.1 Plan of Reorganization and Merger Agreement attached as Appendix
II to the Proxy Statement/Prospectus included in Part I, is
incorporated herein by reference.
3.1 Certificate of Incorporation of Nara Bancorp, Inc., attached as
Appendix III to the Proxy Statement/Prospectus included in Part
I, is incorporated herein by reference.
3.2 Bylaws of Nara Bancorp, Inc., attached as Appendix IV to the
Proxy Statement/ Prospectus included in Part I, are incorporated
herein by reference.
4.1 Form of Stock Certificate of Nara Bancorp, Inc.
5.1 Opinion of Manatt, Phelps & Phillips, LLP
8.1 Tax Opinion of Manatt, Phelps & Phillips, LLP
10.1 Nara Bank, N. A. 2000 Long Term Incentive Plan*
10.2 Nara Bank, N.A. 1989 Stock Option Plan
23.1 Consent of Deloitte & Touche LLP*
23.2 Consent of Manatt, Phelps & Phillips, LLP (included in Exhibits
5.1 and 8.1)
24.1 Power of Attorney (included in the signature page of Part II
hereof)
99.1 Form of Proxy
--------------------
* Previously filed with the Registration Statement on Form S-4 dated
November 16, 2000, Registration No. 333-50126
Dates Referenced Herein and Documents Incorporated by Reference
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